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Full text of "The history of the Standard Oil Company"

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THE HISTORY OF 
THE STANDARD OIL COMPANY 



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<>pyrn;ht, /904, by A 



JOHN DAVISON ROCKEFELLER IN I904 
Born July 8, 1839 



THE HISTORY OF 

THE STANDARD 
OIL COMPANY 



BY 



IDA M. TARBELL 

AUTHOR OF 

THE LIFE OF ABRAHAM LINCOLN, THE LIFE OF NAPOLEON BONAPARTE, 

AND MADAME ROLAND: A BIOGRAPHICAL STUDY 



ILLUSTRATED WITH PORTRAITS 
PICTURES AND DIAGRAMS 





VOLUME ONE 



NEW YORK 

McCLURE, PHILLIPS # CO. 

MCMV 



* 

4 



Copyright, 1904, by 
McCLURE, PHILLIPS tf CO. 

Published, November, 1904, N 
Second Impression 



K 



Copyright, 1902, 1903, 1904, by The S. S. McClure Co. 



"An Institution is the lengthened shadow of one man." 

EMERSON, IN ESSAY ON "SELF-RELIANCE.' 



" The American Beauty Rose can be produced in its splen- 
dor and fragrance only by sacrificing the early buds which 
grow up around it." 

J. D. ROCKEFELLER, JR., IN AN ADDRESS ON TRUSTS, 
TO THE STUDENTS OF BROWN UNIVERSITY. 



4, 



y 



PREFACE 

THIS work is the outgrowth of an effort on the part 
of the editors of McClure's Magazine to deal con- 
cretely in their pages with the trust question. In 
order that their readers might have a clear and 
succinct notion of the processes by which a particular in- 
dustry passes from the control of the many to that of the 
few, they decided a few years ago to publish a detailed nar- 
rative of the history of the growth of a particular trust. The 
Standard Oil Trust was chosen for obvious reasons. It was 
the first in the field, and it has furnished the methods, the 
charter, and the traditions for its followers. It is the most 
perfectly developed trust in existence ; that is, it satisfies most 
nearly the trust ideal of entire control of the commodity in 
which it deals. Its vast profits have led its officers into vari- 
ous allied interests, such as railroads, shipping, gas, copper, 
iron, steel, as well as into banks and trust companies, and 
to the acquiring and solidifying of these interests it has 
applied the methods used in building up the Oil Trust. It 
has led in the struggle against legislation directed against 
combinations. Its power in state and Federal government, 
in the press, tin the college,] in the pulpit, is generally rec- 
ognised. The perfection of the organisation of the Standard, 
I the ability and daring with which it has carried out its 
projects, make it the pre-eminent trust of the world — the one 
whose story is best fitted to illuminate the subject of combina- 
tions of capital. 
Another important consideration with the editors in decid- 
ing that the Standard Oil Trust was the best adapted to illus- 



PREFACE 

trate their meaning, was the fact that it is one of the very few 
business organisations of the country whose growth could be 
traced in trustworthy documents. There is in existence just 
such documentary material for a history of the Standard Oil 
Company as there is for a history of the Civil War or the 
French Revolution, or any other national episode which has 
divided men's minds. This has come about largely from the 
fact that almost constantly since its organisation in 1870 the 
Standard Oil Company has been under investigation by the 
Congress of the United States and by the Legislatures of vari- 
ous states in which it has operated, on the suspicion that it 
was receiving rebates from the railroads and was practising 
methods in restraint of free trade. In 1872 and again in 1876 
it was before Congressional committees, in 1879 it was before 
examiners of the Commonwealth of Pennsylvania and before 
committees appointed by the Legislatures of New York and 
of Ohio for investigating railroads. Its operations figured 
constantly in the debate which led up to the creation of the 
Interstate Commerce Commission in 1887, an d again and 
again since that time the Commission has been called upon 
to examine directly or indirectly into its relation with the 
railroads. 

In 1888, in the Investigation of Trusts conducted by Con- 
gress and by the state of New York, the Standard Oil Com- 
pany was the chief subject for examination. In the state of 
Ohio, between 1882 and 1892, a constant warfare was waged 
against the Standard in the courts and Legislature, resulting 
in several volumes of testimony. The Legislatures of many 
other states concerned themselves with it. This hostile legisla- 
tion compelled the trust to separate into its component parts 
in 1892, but investigation did not cease; indeed, in the last 
great industrial inquiry, conducted by the Commission ap- 
pointed by President McKinley, the Standard Oil Company 
was constantly under discussion, and hundreds of pages of 

[viii] 



PREFACE 

testimony on it appear in the nineteen volumes of reports 
which the Commission has submitted. 

This mass of testimony, all of it submitted under oath it 
should be remembered, contains the different charters and 
agreements under which the Standard Oil Trust has operated, 
many contracts and agreements with railroads, with refineries, 
with pipe-lines, and it contains the experiences in business 
from 1872 up to 1900 of multitudes of individuals. These 
experiences have exactly the quality of the personal reminis- 
cences of actors in great events, with the additional value that 
they were given on the witness stand, and it is fair, therefore, 
to suppose that they are more cautious and exact in statements 
than many writers of memoirs are. These investigations, cov- 
ering as they do all of the important steps in the develop- 
ment of the trust, include full accounts of the point of view 
of its officers in regard to that development, as well as their 
explanations of many of the operations over which controversy 
has arisen. Hundreds of pages of sworn testimony are found 
in these volumes from John D. Rockefeller, William Rocke- 
feller, Henry M. Flagler, H. H. Rogers, John D. Archbold, 
Daniel O'Day and other members of the concern. 

Aside from the great mass of sworn testimony accessible to 
the student there is a large pamphlet literature dealing with 
different phases of the subject, and there are files of the numer- 
ous daily newspapers and monthly reviews, supported by the 
Oil Regions, in the columns of which are to be found not 
only statistics but full reports of all controversies between 
oil men. No complete collection of this voluminous printed 
material has ever been made, but several small collections 
exist, and in one or another of these I have been able to find 
practically all of the important documents relating to the 

Iubject. Mrs. Roger Sherman of Titusville, Pennsylvania, 
wns the largest of these collections, and in it are to be 
ound copies of the rarest pamphlets. Lewis Emery, Jr., of 



PREFACE 

Bradford, the late E. G. Patterson of Titusville, the late 
Henry D. Lloyd, author of "Wealth vs. Commonwealth," 
William Hasson of Oil City, and P. C. Boyle, the editor of 
the Oil City Derrick, have collections of value, and they have 
all been most generous in giving me access to their books. 

But the documentary sources of this work are by no means 
all printed. The Standard Oil Trust and its constituent com- 
panies have figured in many civil suits, the testimony of which 
is still in manuscript in the files of the courts where the suits 
were tried. These manuscripts have been examined on the 
ground, and in numerous instances full copies of affidavits 
and of important testimony have been made for permanent 
reference and study. I have also had access to many files of 
private correspondence and papers, the most important being 
that of the officers and counsel of the Petroleum Producers' 
Union from 1878 to 1880, that covering the organisation 
from 1887 to 1895 of the various independent companies 
which resulted in the Pure Oil Company, and that containing 
the material prepared by Roger Sherman for the suit brought 
in 1897 by the United States Pipe Line against certain of the 
Standard companies under the Sherman anti-trust law. 

As many of the persons who have been active in the develop- 
ment of the oil industry are still living, their help has been 
freely sought. Scores of persons in each of the great oil centres 
have been interviewed, and the comprehension and interpre- 
tation of the documents on which the work is based have 
been materially aided by the explanations which the actors 
in the events under consideration were able to give. 

When the work was first announced in the fall of 1901, the 
Standard Oil Company, or perhaps I should say officers of 
the company, courteously offered to give me all the assistance 
in their power, an offer of which I have freely taken advantage. 
In accepting assistance from Standard men as from inde- 
pendents I distinctly stated that I wanted facts, and that I 



PREFACE 

reserved the right to use them according to my own judgment 
of their meaning, that my object was to learn more perfectly 
what was actually done — not to learn what my informants 
thought of what had been done. It is perhaps not too much 
to say that there is not a single important episode in the 
history of the Standard Oil Company, so far as I know it, 
or a notable step in its growth, which I have not discussed 
more or less fully with officers of the company. 

It is needless to add that the conclusions expressed in this 
work are my own. 

I. M. T. 

I 



[xi] 



CONTENTS 

PREFACE Pages vii-xi 

CHAPTER ONE 
THE BIRTH OF AN INDUSTRY 

PETROLEUM FIRST A CURIOSITY AND THEN A MEDICINE— DISCOVERY OF 
ITS REAL VALUE— THE STORY OF HOW IT CAME TO BE PRODUCED IN 
LARGE QUANTITIES— GREAT FLOW OF OIL— SWARM OF PROBLEMS TO 
SOLVE— STORAGE AND TRANSPORTATION— REFINING AND MARKETING- 
RAPID EXTENSION OF THE FIELD OF OPERATION— WORKERS IN GREAT 
NUMBERS WITH PLENTY OF CAPITAL— COSTLY BLUNDERS FREQUENTLY 
MADE— BUT EVERY DIFFICULTY BEING MET AND OVERCOME— THE NORMAL 
UNFOLDING OF A NEW AND WONDERFUL OPPORTUNITY FOR INDIVIDUAL 
ENDEAVOUR Pages 3~37 

CHAPTER TWO , 
THE RISE OF THE STANDARD OIL COMPANY 

JOHN D. ROCKEFELLER'S FIRST CONNECTION WITH THE OIL BUSINESS- 
STORIES OF HIS EARLY LIFE IN CLEVELAND — HIS FIRST PARTNERS- 
ORGANISATION OF THE STANDARD OIL COMPANY IN JUNE, 1870— ROCKE- 
FELLER'S ABLE ASSOCIATES— FIRST EVIDENCE OF RAILWAY DISCRIMINA- 
TIONS IN THE OIL BUSINESS— REBATES FOUND TO BE GENERALLY GIVEN 
TO LARGE SHIPPERS— FIRST PLAN FOR A SECRET COMBINATION— THE 
SOUTH IMPROVEMENT COMPANY— SECRET CONTRACTS MADE WITH THE 
RAILROADS PROVIDING REBATES AND DRAWBACKS— ROCKEFELLER AND 
ASSOCIATES FORCE CLEVELAND REFINERS TO JOIN THE NEW COMBINA- 
TION OR SELL— RUMOUR OF THE PLAN REACHES THE OIL REGIONS. 

Pages 38-69 

[xiii] 



CONTENTS 

CHAPTER THREE 
THE OIL WAR OF 1872 

RISING IN THE OIL REGIONS AGAINST THE SOUTH IMPROVEMENT COMPANY 
—PETROLEUM PRODUCERS' UNION ORGANISED— OIL BLOCKADE AGAINST 
MEMBERS OF SOUTH IMPROVEMENT COMPANY AND AGAINST RAILROADS 
IMPLICATED— CONGRESSIONAL INVESTIGATION OF 187a AND THE DOCU- 
MENTS IT REVEALED— PUBLIC DISCUSSION AND GENERAL CONDEMNATION 
OF THE SOUTH IMPROVEMENT COMPANY— RAILROAD OFFICIALS CONFER 
WITH COMMITTEE FROM PETROLEUM PRODUCERS' UNION— WATSON 
AND ROCKEFELLER REFUSED ADMITTANCE TO CONFERENCE— RAILROADS 
REVOKE CONTRACTS WITH SOUTH IMPROVEMENT COMPANY AND MAKE 
CONTRACT WITH PETROLEUM PRODUCERS' UNION— BLOCKADE AGAINST 
SOUTH IMPROVEMENT COMPANY LIFTED— OIL WAR OFFICIALLY ENDED— 
ROCKEFELLER CONTINUES TO GET REBATES— HIS GREAT PLAN STILL A 
LIVING PURPOSE Pages 7°- io 3 



CHAPTER FOUR 

V 

"AN UNHOLY ALLIANCE" 

ROCKEFELLER AND HIS PARTY NOW PROPOSE AN OPEN INSTEAD OF A 
SECRET COMBINATION— " THE PITTSBURG PLAN"— THE SCHEME IS NOT 
APPROVED BY THE OIL REGIONS BECAUSE ITS CHIEF STRENGTH IS THE 
REBATE — ROCKEFELLER NOT DISCOURAGED — THREE MONTHS LATER 
BECOMES PRESIDENT OF NATIONAL REFINERS' ASSOCIATION— FOUR-FIFTHS 
OF REFINING INTEREST OF UNITED STATES WITH HIM— OIL REGIONS 
AROUSED— PRODUCERS' UNION ORDER DRILLING STOPPED AND A THIRTY 
DAY SHUT-DOWN TO COUNTERACT FALLING PRICE OF CRUDE— PETRO- 
LEUM PRODUCERS* AGENCY FORMED TO ENABLE PRODUCERS TO CON- 
TROL THEIR OWN OIL— ROCKEFELLER OUTGENERALS HIS OPPONENTS AND 
FORCES A COMBINATION OF REFINERS AND PRODUCERS — PRODUCERS* 
ASSOCIATION AND PRODUCERS' AGENCY SNUFFED OUT— NATIONAL REFIN- 
ERS' ASSOCIATION DISBANDS— ROCKEFELLER STEADILY GAINING GROUND. 

Pages IO4-128 

[xiv] 



CONTENTS 

CHAPTER FIVE 
LAYING THE FOUNDATIONS OF A TRUST 

VIDENCE OF REAPPEARANCE OF REBATES SOON AFTER AGREEMENT OF 
MARCH 25 IS SIGNED — PRINCIPLE THOROUGHLY ESTABLISHED THAT 
LARGE SHIPPERS SHALL HAVE ADVANTAGES OVER SMALL SHIPPERS 
IN SPITE OF RAILROADS' DUTY AS COMMON CARRIERS— AGREEMENT 
WORKED OUT BY WHICH THREE ROADS ARE TO HAVE FIXED PERCENT- 
AGE OF EASTERN SHIPMENTS— OIL REGIONS ROBBED OF THEIR GEO- 
GRAPHICAL ADVANTAGE— THE RUTTER CIRCULAR— ROCKEFELLER NOW 
SECRETLY PLANS REALISATION OF HIS DREAM OF PERSONAL CONTROL 
OF THE REFINING OF OIL — ORGANISATION OF THE CENTRAL ASSO- 
CIATION— H. H. ROGERS* DEFENCE OF THE PLAN— ROCKEFELLER'S QUIET 
AND SUCCESSFUL CANVASS FOR ALLIANCES WITH REFINERS— THE REBATE 
HIS WEAPON— CONSOLIDATION BY PERSUASION OR FORCE— MORE TALK 
OF A UNITED EFFORT TO COUNTERACT THE MOVEMENT. 

Pages 129-166 



CHAPTER SIX 
STRENGTHENING THE FOUNDATIONS 

FIRST INTERSTATE COMMERCE BILL— THE BILL PIGEON-HOLED THROUGH 
EFFORTS OF STANDARD'S FRIENDS— INDEPENDENTS SEEK RELIEF BY PRO- 
POSED CONSTRUCTION OF PIPE-LINES— PLANS FOR THE FIRST SEABOARD 
PIPE-LINE— SCHEME FAILS ON ACCOUNT OF MISMANAGEMENT AND STAND- 
ARD AND RAILROAD OPPOSITION— DEVELOPMENT OF THE EMPIRE TRANS- 
PORTATION COMPANY AND ITS PROPOSED CONNECTION WITH THE REFINING 
BUSINESS— STANDARD, ERIE AND CENTRAL FIGHT THE EMPIRE TRANSPOR- 
TATION COMPANY AND ITS BACKER, THE PENNSYLVANIA RAILROAD— THE 
PENNSYLVANIA FINALLY QUITS AFTER A BITTER AND COSTLY WAR— EMPIRE 
LINE SOLD TO THE STANDARD— ENTIRE PIPE-LINE SYSTEM OF OIL REGIONS 
NOW IN ROCKEFELLER'S HANDS— NEW RAILROAD POOL BETWEEN FOUR 
ROADS— ROCKEFELLER PUTS INTO OPERATION SYSTEM OF DRAWBACKS 
ON OTHER PEOPLE'S SHIPMENTS— HE PROCEEDS RAPIDLY WITH THE WORK 
OF ABSORBING RIVALS Pages 1 67-207 

[XV] 



CONTENTS 

CHAPTER SEVEN 
THE CRISIS OF 1878 



/ 



A RISE IN OIL— A BLOCKADE IN EXPORTS— PRODUCERS DO NOT GET THEIR 
SHARE OF THE PROFITS— THEY SECRETLY ORGANISE THE PETROLEUM PRO- 
DUCERS* UNION AND PROMISE TO SUPPORT PROPOSED INDEPENDENT PIPE- 
LINES—ANOTHER INTERSTATE COMMERCE BILL DEFEATED AT WASHINGTON 
—"IMMEDIATE SHIPMENT "—INDEPENDENTS HAVE TROUBLE GETTING 
CARS— RIOTS THREATENED— APPEAL TO GOVERNOR HARTRANFT— SUITS 
BROUGHT AGAINST UNITED PIPE-LINES, PENNSYLVANIA RAILROAD AND 
OTHERS— INVESTIGATIONS PRECIPITATED IN OTHER STATES— THE HEP- 
BURN COMMISSION AND THE OHIO INVESTIGATION— EVIDENCE THAT THE 
STANDARD IS A CONTINUATION OF THE SOUTH IMPROVEMENT COMPANY- 
PRODUCERS FINALLY DECIDE TO PROCEED AGAINST STANDARD OFFICIALS- 
ROCKEFELLER AND EIGHT OF HIS ASSOCIATES INDICTED FOR CONSPIRACY. 

Pages 208—240 



CHAPTER EIGHT 
THE COMPROMISE OF 1880 

THE PRODUCERS' SUIT AGAINST ROCKEFELLER AND HIS ASSOCIATES USED 
BY THE STANDARD TO PROTECT ITSELF— SUITS AGAINST THE TRANSPOR- 
TATION COMPANIES ARE DELAYED— TRIAL OF ROCKEFELLER AND HIS 
ASSOCIATES FOR CONSPIRACY POSTPONED — ALL OF THE SUITS WITH- 
DRAWN IN RETURN FOR AGREEMENTS OF THE STANDARD AND THE 
PENNSYLVANIA TO CEASE THEIR PRACTICES AGAINST THE PRODUCERS— 
WITH THIS COMPROMISE THE SECOND PETROLEUM PRODUCERS' UNION 
COMES TO AN END— PRODUCERS THEMSELVES TO BLAME FOR NOT STAND- 
ING BEHIND THEIR LEADERS— STANDARD AGAIN ENFORCES ORDERS OBJEC- 
TIONABLE TO PRODUCERS— MORE OUTBREAKS IN THE OIL REGIONS- 
ROCKEFELLER HAVING SILENCED ORGANISED OPPOSITION PROCEEDS TO 
SILENCE INDIVIDUAL COMPLAINT Pages 24 1 -26 2 



APPENDIX Pages 263-406 

[xvi] 






LIST OF ILLUSTRATIONS 



PORTRAIT OF JOHN DAVISON ROCKEFELLER IN 1904 . . Frontispiece 

Born July 8, 1839. facing 

PAGE 

PORTRAIT OF E. L. DRAKE 8 

In 1859 Drake drilled near Titusville, Pennsylvania, the first artesian well put down 
for petroleum. He is popularly said to have "discovered oil." 

THE DRAKE WELL IN 1859— THE FIRST OIL WELL IO 

FAC-SIMILE OF A LABEL USED BY S. M. KIER IN ADVERTISING ROCK- 
OIL OBTAINED IN DRILLING SALT WELLS NEAR TARENTUM, PENN- 
SYLVANIA 34 

FAGUNDUS— A TYPICAL OIL TOWN 34 

PORTRAIT OF JOHN D. ROCKEFELLER IN 187a 40 

PORTRAIT OF W. G. WARDEN 53 

Secretary of the South Improvement Company. 

PORTRAIT OF PETER H. WATSON 53 

President of the South Improvement Company. 

PORTRAIT OF CHARLES LOCKHART 53 

A member of the South Improvement Company, and later of the Standard Oil 
Company. At his death in 1904 the oldest living oil operator. 

PORTRAIT OF HENRY M. FLAGLER IN 1882 53 

Active partner of John D. Rockefeller in the oil business since 1867. Officer of 
the Standard Oil Company since its organization in 1870. 

PORTRAIT OF THOMAS A. SCOTT 60 

The contract of the South Improvement Company with the Pennsylvania Railroad 
was signed by Mr. Scott, then vice-president of the road. 

PORTRAIT OF WILLIAM H. VANDERBILT . . . . . . . 60 

The contract of the South Improvement Company with the New York Central 
was signed by Mr. Vanderbilt, then vice-president of the road. 



PORTRAIT OF JAY GOULD 60 

1872. Sig 

[ xvii ] 



President of the Erie Railroad in 1872. Signer of the contract with the South 
Improvement Company. 



LIST OF ILLUSTRATIONS 



FACINC 
PAGE 



PORTRAIT OF COMMODORE CORNELIUS VANDERBILT 60 

President of the New York Central Railroad when the contract with the South 
Improvement Company was signed. 

PORTRAIT OF JOHN D. ARCHBOLD IN 187a 74 

Now vice-president of the Standard Oil Company. Mr. Archbold, whose home, in 
1872, was in Titusville, Pennsylvania, although one of the youngest refiners of 
the Creek, was one of the most active and efficient in breaking up the South 
Improvement Company. 

PORTRAIT OF HENRY H. ROGERS IN 1872 88 

Now president of the National Transit Company and a director of the Standard 
Oil Company. The opposition to the South Improvement Company among 
the New York refiners was led by Mr. Rogers. 

PORTRAIT OF M. N. ALLEN HO 

Independent refiner of Titusville. Editor of the Courier^ an able opponent of the 
South Improvement Company. 

PORTRAIT OF JOHN FERTIG HO 

Prominent oil operator. Until 1893 active in Producers' and Refiners' Company 
(independent). 

PORTRAIT OF CAPT. WILLIAM HASSON HO 

President of the Petroleum Producers' Association of 1872. 

PORTRAIT OF JOHN L. McKINNEY HO 

Prominent oil operator. Until 1889 an independent. Now member of the Stand- 
ard Oil Company. 

PORTRAIT OF JAMES S. TARR I2Z 

Owner of the " Tarr Farm," one of the richest oil territories on Oil Creek. 

PORTRAIT OF WILLIAM BARNSDALL 122 

The second oil well on Oil Creek was put down by Mr. Barnsdall. 

PORTRAIT OF JAMES S. McCRAY 122 

Owner of the McCray Farm near Petroleum Centre. 

PORTRAIT OF WILLIAM H. ABBOTT . 122 

One of the most prominent of the early oil producers, refiners and pipe-line operators. 

FLEET OF OIL BOATS AT OIL CITY IN 1864 1 36 

PORTRAIT OF GEORGE H. BISSELL 1 46 

Founder of the first oil company in the United State*. 

PORTRAIT OF JONATHAN WATSON . . 1 46 

One of the owners of the land on which the first successful well was drilled for oil. 

[ xviii ] 



LIST OF ILLUSTRATIONS 

FACING 
PAGE 

PORTRAIT OF SAMUEL KIER 1 46 

The first petroleum refined and sold for lighting purpose was made by Mr. Kier in 
the '50s in Pittsburg. 

PORTRAIT OF JOSHUA MERRILL 1 46 

The chemist and refiner to whom many of the most important processes now in 
use in making illuminating and lubricating oils are due. 

PORTRAIT OF A. J. CASSATT IN 1877 1 84 

Third vice-president of the Pennsylvania Railroad in charge of transportation 
when first contract was made by that road with the Standard Oil Company. 

PORTRAIT OF GENERAL GEORGE B. McCLELLAN 1 84 

President of the Atlantic and Great Western Railroad at the time of the South 
Improvement Company. General McClellan did not sign the contract. 

PORTRAIT OF GENERAL JAMES H. DEVEREUX 1 84 

Who in 1868 as vice-president of the Lake Shore and Michigan Southern Railroad 
first granted rebates to Mr. Rockefeller's firm. 

PORTRAIT OF JOSEPH D. POTTS 1 84 

President of the Empire Transportation Company. Leader in the struggle between 
the Pennsylvania Railroad and the Standard Oil Company in 1877. 

WOODEN CAR TANKS 212 

BOILER TANK CARS 212 

WOODEN TANKS FOR STORING OIL . . 212 

RAILROAD TERMINAL OF AN EARLY PIPE LINE . . . . .212 

PORTRAIT OF E. G. PATTERSON 248 

From 1872 to 1880 the chief advocate in the Oil Region of an interstate commerce 
law. Assisted in drafting the bills of 1876 and 1880. Abandoned the inde- 
pendent interests at the time of the compromise of 1880. 

PORTRAIT OF ROGER SHERMAN 248 

Chief counsel of the Petroleum Producers' Union from 1878 to 1880. From 
1880 to 1885 counsel for the Standard Oil Company. From 1885 to his 
death in 1893 counsel of the allied independents. 

PORTRAIT OF BENJ. B. CAMPBELL 248 

President of the Petroleum Producers' Union from 1878 to 1880. Independent 
refiner and operator until his death. 

PORTRAIT OF JOSIAH LOMBARD 248 

Prominent independent refiner of N. Y. City, whose firm was the only one to keep 
its contract with the Tidewater Pipe Line Company in 1880. 



[xix] 



THE HISTORY OF 
THE STANDARD OIL COMPANY 



CHAPTER ONE 

THE BIRTH OF AN INDUSTRY 

PETROLEUM FIRST A CURIOSITY AND THEN A MEDICINE— DISCOVERY OF 
ITS REAL VALUE— THE STORY OF HOW IT CAME TO BE PRODUCED IN 
LARGE QUANTITIES— GREAT FLOW OF OIL— SWARM OF PROBLEMS TO 
SOLVE— STORAGE AND TRANSPORTATION— REFINING AND MARKETING- 
RAPID EXTENSION OF THE FIELD OF OPERATION— WORKERS IN GREAT 
NUMBERS WITH PLENTY OF CAPITAL— COSTLY BLUNDERS FREQUENTLY 
MADE— BUT EVERY DIFFICULTY BEING MET AND OVERCOME— THE NORMAL 
UNFOLDING OF A NEW AND WONDERFUL OPPORTUNITY FOR INDIVIDUAL 
ENDEAVOUR. 

ONE of the busiest corners of the globe at the open- 
ing of the year 1872 was a strip of Northwestern 
Pennsylvania, not over fifty miles long, known the 
world over as the Oil Regions. Twelve years before 
this strip of land had been but little better than a wilderness; 
its chief inhabitants the lumbermen, who every season cut 
great swaths of primeval pine and hemlock from its hills, 
and in the spring floated them down the Allegheny River 
to Pittsburg. The great tides of Western emigration had 
shunned the spot for years as too rugged and unfriendly for 
settlement, and yet in twelve years this region avoided by 
men had been transformed into a bustling trade centre, where 
towns elbowed each other for place, into which three great 
trunk railroads had built branches, and every foot of whose 

[|il was fought for by capitalists. It was the discovery and 
evelopment of a new raw product, petroleum, which had 
made this change from wilderness to market-place. This 
product in twelve years had not only peopled a waste place 
of the earth, it had revolutionised the world's methods of 

[3] 



THE HISTORY OF THE STANDARD OIL COMPANY 

illumination and added millions upon millions of dollars to 
the wealth of the United States. 

Petroleum as a curiosity, and indeed in a small way as an 
article of commerce, was no new thing when its discovery in 
quantities called the attention of the world to this corner of 
Northwestern Pennsylvania. The journals of many an early 
explorer of the valleys of the Allegheny and its tributaries tell 
of springs and streams the surfaces of which were found cov- 
ered with a thick oily substance which burned fiercely when 
ignited and which the Indians believed to have curative prop- 
erties. As the country was opened, more and more was heard of 
these oil springs. Certain streams came to be named from the 
quantities of the substance found on the surface of the water, 
as "Oil Creek" in Northwestern Pennsylvania, "Old Greasy" 
or Kanawha in West Virginia. The belief in the substance 
as a cure-all increased as time went on and in various parts 
of the country it was regularly skimmed from the surface 
of the water as cream from a pan, or soaked up by woollen 
blankets, bottled, and peddled as a medicine for man and 
beast. 

Up to the beginning of the 19th century no oil seems to 
have been obtained except from the surfaces of springs and 
streams. That it was to be found far below the surface of 
the earth was discovered independently at various points in 
Kentucky, West Virginia, Ohio and Pennsylvania by per- 
sons drilling for salt-water to be used~in manufacturing salt. 
Not infrequently the water they found was mixed with a 
dark-green, evil-smelling substance which was recognised as 
identical with the well-known "rock-oil." It was necessary 
to rid the water of this before it could be used for salt, and 
in many places cisterns were devised in which the brine was 
allowed to stand until the oil had risen to the surface. It was 
then run into the streams or on the ground. This practice was 
soon discovered to be dangerous, so easily did the oil ignite. 

[4] 



THE BIRTH OF AN INDUSTRY 

In several places, particularly in Kentucky, so much oil was 
obtained with the salt-water that the wells had to be aban- 
doned. Certain of these deserted salt wells were opened years 
after, when it was found that the troublesome substance which 
had made them useless was far more valuable than the brine 
the original drillers sought. 

Naturally the first use made of the oil obtained in quanti- 
i ties from the salt wells was medicinal. By the middle of the 
century it was without doubt the great American medicine. 
"Seneca Oil" seems to have been the earliest name under 
which petroleum appeared in the East. It was followed by 
a large output of Kentucky petroleum sold under the name 
"American Medicinal Oil." Several hundred thousand bot- 
tles of this oil are said to have been put up in Burkesville, 
Kentucky, and to have been shipped to the East and to 
Europe. The point at which the business of bottling petro- 
leum for medicine was carried on most systematically and 
extensively was Pittsburg. Near that town, at Tarentum in 
Alleghany County, were located salt wells owned and oper- 
ated in the forties by Samuel M. Kier. The oil which came 
up with the salt-water was sufficient to be a nuisance, and Mr. 
Kier sought a way to use it. Believing it had curative quali- 
ties he began to bottle it. By 1850 he had worked up this 
business until "Kier's Petroleum, or Rock-Oil" was sold all 
over the United States. The crude petroleum was put up in 
eight-ounce bottles wrapped in a circular setting forth in 
1 good patent-medicine style its virtues as a cure-all, and giv- 
l ing directions about its use. While it was admitted to be 
chiefly a liniment it was recommended for cholera morbus, 
i liver complaint, bronchitis and consumption, and the dose 
i prescribed was three teaspoonfuls three times a day! Mr. 
j Kier's circulars are crowded with testimonials of the effi- 
15 cacy of rock-oil, dated anywhere between 1848 and 1853. 
d Although his trade in this oil was so extensive he was not 

[5] 



THE HISTORY OF THE STANDARD OIL COMPANY 

satisfied that petroleum was useful only as a medicine. He 
was interested in it as a lubricator and a luminant. That 
petroleum had the qualities of both had been discovered at 
more than one point before 1850. More than one mill-owner 
in the districts where petroleum had been found was using 
it in a crude way for oiling his machines or lighting his 
works, but though the qualities of both lubricator and lumi- 
nant were present, the impurities of the natural oil were too 
great to make its use general. Mr. Kier seems to have been 
the first man to have attempted to secure an expert opinion 
as to the possibility of refining it. In 1849 he sent a bottle of 
oil to a chemist in Philadelphia, who advised him to try dis- 
tilling it and burning it in a lamp. Mr. Kier followed the 
advice, and a five-barrel still which he used in the fifties 
for refining petroleum is still to be seen in Pittsburg. His 
trade in the oil he produced at his little refinery was not 
entirely local, for in 1858 we find him agreeing to sell to 
Joseph Coffin of New York at 62^ cents a gallon 100 
barrels of "carbon oil that will burn in the ordinary coal-oil 
lamp." 

Although Mr. Kier seems to have done a good business 
in rock-oil, neither he nor any one else up to this point had 
thought it worth while to seek petroleum for its own sake. 
They had all simply sought to utilise what rose before their 
eyes on springs and streams or came to them mixed with the 
salt-water for which they drilled. In 1854, however, a man 
was found who took rock-oil more seriously. This man was 
George JHL Bissell, a graduate of Dartmo uth College, who, 
worn out by an experience of ten years in the South as a 
journalist and teacher, had come North for a change. At his 
old college the latest curiosity of the laboratory was shown! 
him — the bottle of rock-oil — and the professor contended that 
it was as good, or better, than coal for making illuminating! 
oil. Bissell inquired into its origin, and was told that it came' } 

[6] 



THE BIRTH OF AN INDUSTRY 

from oil springs located in Northwestern Pennsylvania on 
the farm of a lumber firm, Brewer, Watson and Company. 
These springs had long yielded a supply of oil which was regu- 
larly collected and sold for medicine, and was used locally by 
mill-owners for lighting and lubricating purposes. 

Bissell seems to have been impressed with the commercial 
possibilities of the oil, for he at once organised a company, 
the Pennsylvania Rock-Oil Company, the first in the United 
States, and leased the lands on which these oil springs were 
located. He then_ sent a qua ntity of the oil to Professor„Silli- 
man of Ya le— College, a nd paid him for analysing it. The 
professor's regorijyas published and received general atten- 
tion. From the rock-oil might be made as good an illuminant 
as any the world knew. It also yielded gas, paraffine, lubri- 
cating oil. "In short," declared Professor Silliman, "your 
company have in their possession a raw material from which, 
by simple and not expensive process, they may manufacture 
very valuable products. It is worthy of note that my experi- 
ments prove that nearly the whole of the raw product may 
be manufactured without waste, and this solely by a well- 
directed process which is in practice in one of the most simple 
of all chemical processes." * 

The oil was valuable, but could it be obtained in quanti- 
ties great enough to make the development of so remote a 
locality worth while? The only method of obtaining it known 
to Mr. Bissell and his associates in the new company was 
from the surface of oil springs. Could it be obtained in 
any other way? There has long been a story current in the 
Oil Regions that the Pennsylvania Rock-Oil Company re- 
ceived its first notion of drilling for oil from one of those 
trivial incidents which so often turn the course of human 

Iffairs. As the story goes, Mr. Bissell was one day walking 
own Broadway when he halted to rest in the shade of an 
* See Appendix, Number i. Professor Silliman's report on petroleum. 
[7] 



THE HISTORY OF THE STANDARD OIL COMPANY 

awning before a drug store. In the window he saw on a 
bottle a curious label, "Kier's Petroleum, or Rock-Oil," it 
read, "Celebrated for its wonderful curative powers. A 
natural Remedy; Produced from a well in Allegheny Co., 
Pa., four hundred feet below the earth's surface," etc. On 
the label was the picture of an artesian well. It was from 
this well that Mr. Kier got his "Natural Remedy." Hun- 
dreds of men had seen the label before, for it went out on 
every one of Mr. Kier's circulars, but this was the first to 
look at it with a "seeing eye." As quickly as the bottle of 
rock-oil in the Dartmouth laboratory had awakened in Mr. 
Bissell's mind the determination to find out the real value of 
the strange substance, the label gave him the solution of the 
problem of getting oil in quantities — it was to bore down 
into the earth where it was stored, and pump it up. 

Professor Silliman made his report to the Pennsylvania 
Rock-Oil Company in 1855, but it was not until the spring 
of 1858 that a representative of the organisation, which by 
this time had changed hands and was known as the Seneca 
Oil Company, was on the ground with orders to find oil. 
The man sent out was a small stockholder in the company, 
Edwin L. Drake, "Colonel" Drake as he was called. Drake 
had had no experience to fit him for his task. A man forty 
years of age, he had spent his life as a clerk, an express agent, 
and a railway conductor. His only qualifications were a dash 
of pioneer blood and a great persistency in undertakings 
which interested him. Whether Drake came to Titusville 
ordered to put down an artesian well or not is a mooted 
point. His latter-day admirers claim that the idea was entirely 
his own. It seems hardly credible that men as intelligent as 
Professor Silliman, Mr. Bissell, and others interested in the 
Pennsylvania Rock-Oil Company, should not have taken 
means of finding out how the familiar "Kier's Rock-Oil" 
was obtained. Professor Silliman at least must have known 

[8] 





] 




7\ 




E. L. DRAKE 



In 1859 Drake drilled rear Titusville, Pennsylvania, the first artesian well put down for 
petroleum. He is popularly said to have " discovered oil." 






THE BIRTH OF AN INDUSTRY 

of the quantities of oil which had been obtained in different 
states in drilling salt wells; indeed, in his report (see Appen- 
dix, Number i ) he speaks of "wells sunk for the purpose of 
accumulating the product." In the "American Journal of Sci- 
ence" for 1840 — of which he was one of the editors — is an ac- 
count of a famous oil well struck near Burkesville, Kentucky, 
about 1830, when drilling for salt. It seems probable that the 
idea of seeking oil on the lands leased by the Petroleum Rock- 
Oil Company by drilling artesian wells had been long dis- 
cussed by the gentlemen interested in the venture, and that 
Drake came to Titusville with instructions to put down a 
well. It is certain, at all events, that he was soon explaining 
to his superiors at home the difficulty of getting a driller, an 
engine-house and tools, and that he was employing the inter- 
val in trying to open new oil springs and make the old ones 
more profitable. 

The task before Drake was no light one. The spot to which 
he had been sent was Titusville, a lumberman's hamlet on 
Oil Creek, fourteen miles from where that stream joins the 
Allegheny River. Its chief connection with the outside world 
was by a stage to Erie, forty miles away. This remoteness 
from civilisation and Drake's own ignorance of artesian 
wells, added to the general scepticism of the community 
concerning the enterprise, caused great difficulty and long 
delays. It was months before Drake succeeded in getting 
together the tools, engine and rigging necessary to bore his 
well, and before he could get a driller who knew how to 
manipulate them, winter had come, and he had to suspend 
operations. People called him crazy for sticking to the enter- 
rise, but that had no effect on him. As soon as spring opened 
borrowed a horse and wagon and drove over a hundred 
miles to Tarentum, where Mr. Kier was still pumping his 
salt wells, and was either bottling or refining the oil which 
came up with the brine. Here Drake hoped to find a driller. 

[9] 



z 



THE HISTORY OF THE STANDARD OIL COMPANY 
He brought back a man, and after a few months more of 
experiments and accidents the drill was started. One day late 
in August, 1859, Titusville was electrified by the news that 
Drake's Folly, as many of the onlookers had come to con- 
sider it, had justified itself. The well was full of oil. The 
next day a pump was started, and twenty-five barrels of oil 
were gathered. 

There was no doubt of the meaning of the Drake well 
in the minds of the people of the vicinity. They had long 
ago accepted all Professor Silliman had said of the possibili- 
ties of petroleum, and now that they knew how it could be 
obtained in quantity, the whole country-side rushed out to 
obtain leases. The second well in the immediate region was 
drilled by a Titusville tanner, William Barnsdall — an Eng- 
lishman who at his majority had come to America to make 
his fortune. He had fought his way westward, watching 
always for his chance. The day the Drake well was struck he 
knew it had come. Quickly forming a company he began to 
drill a well. He did not wait for an engine, but worked his 
drill through the rock by a spring pole.* It took three months, 
and cost $3,000 to do it, but he had his reward. On February 
1, i860, he struck oil — twenty-five barrels a day — and oil was 

* An elastic pole of ash or hickory, twelve to twenty feet long, was fastened at 
one end to work over a fulcrum. To the other end stirrups were attached, or a tilt- 
ing platform was secured, by which two or three men produced a jerking motion 
that drew down the pole, its elasticity pulling it back with sufficient force, when the 
men slackened their hold, to raise the tools a few inches. The principle resembled 
that of the treadle-board of a sewing machine, operating which moves the needle up 
and down. The tools were swung in the driving pipe, or the " conductor " — a 
wooden tube eight or ten inches square, placed endwise in a hole dug to the rock — 
and fixed by a rope to the spring pole, two or three feet from the workmen. The 
strokes were rapid, and a sand pump— a spout three inches in diameter, with a hinged 
bottom opening inward and a valve working on a sliding rod, somewhat in the : j 
manner of a syringe — removed the borings mainly by sucking them into the spout as 
it was drawn out quickly. McLaurins " History of Petroleum" 

[10] 



THE BIRTH OF AN INDUSTRY 

selling at eighteen dollars a barrel. In five months the Eng- 
lish tanner had sold over $16,000 worth of oil. 

A lumberman and merchant of the village, who long had 
had faith in petroleum if it could be had in quantity, Jona- 
than Watson, one of the firm of Brewer, Watson and Company, 
whose land the Pennsylvania Rock-Oil Company had leased, 
mounted his horse as soon as he heard of the Drake well, and, 
riding down the valley of Oil Creek, spent the day in leasing 
farms. He soon had the third well of the region going down, 
this too by a spring pole. This well started off in March at 
sixty gallons a minute, and oil was selling at sixty cents a 
gallon. In two years the farm where this third well was 
struck had produced 165,000 barrels of oil. 

Working an unfriendly piece of land a few miles below 
the Drake well lived a man of thirty-five. Setting out for 
himself at twenty-two, he had won his farm by the most 
dogged efforts, working in saw-mills, saving his earnings, 
buying a team, working it for others until he could take up 
a piece of land, hoarding his savings here. For what? How 
could he know? He knew well enough when Drake struck 
oil, and hastened out to buy a share in a two-acre farm. He 
sold it at a profit, and with the money put down a well, from 
which he realised $70,000. A few years later the farm he 
had slaved to win came into the field. In 1871 he refused a 
million dollars for it, and at one time he had stored there 
200,000 barrels of oil. 

A young doctor who had buried himself in the wilderness 
saw his chance. For a song he bought thirty-eight acres on 
the creek, six miles below the Drake well, and sold half of 
it for the price he had paid to a country storekeeper and 
lumberman of the vicinity, one Charles Hyde. Out of this 
thirty-eight acres millions of dollars came; one well alone — 

Ie Mapleshade — cleared one and one-half millions. 
On every rocky farm, in every poor settlement of the 



THE HISTORY OF THE STANDARD OIL COMPANY 
region, was some man whose ear was attuned to Fortune's 
call, and who had the daring and the energy to risk every- 
thing he possessed in an oil lease. It was well that he acted 
at once; for, as the news of the discovery of oil reached the 
open, the farms and towns of Ohio, New York, and Penn- 
sylvania poured out a stream of ambitious and vigorous 
youths, eager to seize what might be there for them, while 
from the East came men with money and business experience, 
who formed great stock companies, took up lands in parcels 
of thousands of acres, and put down wells along every rocky 
run and creek, as well as over the steep hills. In answer to 
their drill, oil poured forth in floods. In many places pump- 
ing was out of the question; the wells flowed 2,000, 3,000, 
4,000 barrels a day — such quantities of it that at the close 
of 1 86 1 oil which in January of i860 was twenty dollars a 
barrel had fallen to ten cents. 

Here was the oil, and in unheard-of quantities, and with 
it came all the swarm of problems which a discovery brings. 
The methods Drake had used were crude and must be im- 
proved. The processes of refining were those of the laboratory 
and must be developed. Communication with the outside 
world must be secured. Markets must be built up. Indeed, 
a whole new commercial machine had to be created to meet 
the discovery. These problems were not realised before the 
region teemed with men to wrestle with them — men "alive 
to the instant need of things." They had to begin with so 
simple and elementary a matter as devising something to 
hold the oil. There were not barrels enough to be bought 
in America, although turpentine barrels, molasses barrels, 
whiskey barrels— every sort of barrel and cask— were added 
to new ones made especially for oil. Reservoirs excavated in 
the earth and faced with logs and cement, and box-like 
structures of planks or logs were tried at first but were not 
satisfactory. A young Iowa school teacher and farmer, visit- 

[12] 



THE BIRTH OF AN INDUSTRY 

ing at his home in Erie County, went to the region. Imme- 
diately he saw his chance. It was to invent a receptacle which 
would hold oil in quantities. Certain large producers listened 
to his scheme and furnished money to make a trial tank. It 
was a success, and before many months the school-teacher 
was buying thousands of feet of lumber, employing scores 
of men, and working them and himself — day and night. For 
nearly ten years he built these wooden tanks. Then seeing 
that iron tanks — huge receptacles holding thousands of bar- 
rels where his held hundreds — were bound to supersede him, 
he turned, with the ready adaptability which characterised 
the men of the region, to producing oil for others to tank. 

After the storing problem came that of transportation. 
There was one waterway leading out — Oil Creek, as it had 
been called for more than a hundred years, — an uncertain 
stream running the length of the narrow valley in which the 
oil was found, and uniting with the Allegheny River at what 
is now known as Oil City. From this junction it was 132 
miles to Pittsburg and a railroad. Besides this waterway were 
rough country roads leading to the railroads at Union City, 
Corry, Erie and Meadville. There was but one way to get 
the oil to the bank of Oil Creek or to the railroads, and that 
was by putting it into barrels and hauling it. Teamsters 
equipped for this service seemed to fall from the sky. The 
farms for a hundred miles around gave up their boys and 
horses and wagons to supply the need. It paid. There were 
times when three and even four dollars a barrel were paid 
for hauling five or ten miles. It was not too much for the 
work. The best roads over which they travelled were narrow, 
rough, unmade highways, mere openings to the outer world, 
while the roads to the wells they themselves had to break 
across fields and through forests. These roads were made 
almost impassable by the great number of heavily freighted 
wagons travelling over them. From the big wells a constant 

[13] 



THE HISTORY OF THE STANDARD OIL COMPANY 
procession of teams ran, and it was no uncommon thing for 
a visitor to the Oil Regions to meet oil caravans of a hun- 
dred or more wagons. Often these caravans were held up for 
hours by a dangerous mud-hole into which a wheel had sunk 
or a horse fallen. If there was a possible way to be made 
around the obstruction it was taken, even if it led through a 
farmer's field. Indeed, a sort of guerilla warfare went on 
constantly between the farmers and the teamsters. Often the 
roads became impassable, so that new ones had to be broken, 
and not even a shot-gun could keep the driver from going 
where the passage was least difficult. The teamster, in fact, 
carried a weapon which few farmers cared to face, his ter- 
rible "black snake," as his long, heavy black whip was called. 
The man who had once felt the cruel lash of a "black snake" 
around his legs did not often oppose the owner. 

With the wages paid him the teamster could easily become 
a kind of plutocrat. One old producer tells of having a 
teamster in his employ who for nine weeks drew only enough 
of his earnings to feed himself and horses. He slept in his 
wagon and tethered the team. At the end of the time he 
"thought he'd go home for a clean shirt" and asked for a 
settlement. It was found that he had $1,900 to his credit. The 
story is a fair illustration both of the habits and the earnings 
of the Oil Creek teamsters. Indispensable to the business they 
became the tyrants of the region — working and brawling as 
suited them, a genius not unlike the flatboat-men who once 
gave colour to life on the Mississippi, or the cowboys who 
make the plains picturesque to-day. Bad as their reputation 
was, many a man found in their ranks the start which led later 
to wealth and influence in the oil business. One of the shrewd- 
est, kindest, oddest men the Oil Regions ever knew, Wesley 
Chambers, came to the top from the teamster class. He had 
found his way to the creek after eight years of unsuccessful 
gold-hunting in California. "There's my chance," he said, 

[14] 



THE BIRTH OF AN INDUSTRY 

when he saw the lack of teams and boats, and he set about 
organising a service for transporting oil to Pittsburg. In a 
short time he was buying horses of his own and building 
boats. Wide-awake to actualities, he saw a few years later that 
the teamster and the boat were to be replaced by the pipe- 
line and the railroad, and forestalled the change by becom- 
ing a producer. 

In this problem of transportation the most important ele- 
ment after the team was Oil Creek and the flatboat. A more 
uncertain stream never ran in a bed. In the summer it was 
low, in the winter frozen; now it was gorged with ice, now 
running mad over the flats. The best service was gotten out 
of it in time of low water through artificial freshets. Mill- 
dams, controlled by private parties, were frequent along the 
creek and its tributaries. By arrangement these dams were 
cut on a certain day or days of the week, usually Friday, and 
on the flood or freshet the flatboats loaded with barrels of 
oil were floated down stream. The freshet was always excit- 
ing and perilous and frequently disastrous. From the points 
where they were tied up the boatmen watched the coming 
flood and cut themselves loose the moment after its head had 
passed them. As one fleet after another swung into the roar- 
ing flood the danger of collision and jams increased. Rare 
indeed was the freshet when a few wrecks did not lie some- 
where along the creek, and often scores lay piled high on 
the bank — a hopeless jam of broken boats and barrels, the 
whole soaked in petroleum and reeking with gas and pro- 
fanity. If the boats rode safely through to the river, there was 
little further danger. 

The Allegheny River traffic grew to great proportions — 
fully 1,000 boats and some thirty steamers were in the fleet, 
and at least 4,000 men. This traffic was developed by men 

tho saw here their opportunity of fortune, as others had 
en it in drilling or teaming. The foremost of these men 



THE HISTORY OF THE STANDARD OIL COMPANY 
was an Ohio River captain, driven northward by the war, 
one J. J. Vandergrift. Captain Vandergrift had run the full 
gamut of river experiences from cabin-boy to owner and 
commander of his own steamers. The war stopped his Mis- 
sissippi River trade. Fitting up one of his steamers as a 
gun-boat, he turned it over to Commodore Foote and looked 
for a new stream to navigate. From the Oil Region at that 
moment the loudest cry was for barrels. He towed 4,000 
empty casks up the river, saw at once the need of some kind 
of bulk transportation, took his hint from a bulk-boat which 
an ingenious experimenter was trying, ordered a dozen of 
them built, towed his fleet to the creek, bought oil to fill 
them, and then returned to Pittsburg to sell his cargo. On 
one alone he made $70,000. 

But the railroad soon pressed the river hard. At the time 
of the discovery of oil three lines, the Philadelphia and Erie, 
the Buffalo and Erie (now the Lake Shore), connecting with 
the Central, and the Atlantic and Great Western, connecting 
with the Erie, were within teaming distance of the region. 
The points at which the Philadelphia and Erie road could 
be reached were Erie, forty miles from Titusville, Union 
City, twenty-two miles, and Corry, sixteen miles. The Buf- 
falo and Erie was reached at Erie. The Atlantic and Great 
Western was reached at Meadville, Union City and Corry, 
and the distances were twenty-eight, twenty-two and sixteen 
miles, respectively. Erie was the favourite shipping point at 
first, as the wagon road in that direction was the best. The 
amount of freight the railroads carried the first year of the 
business was enormous. Of course connecting lines were built 
as rapidly as men could work. By the beginning of 1863 tne 
Oil Creek road, as it was known, had reached Titusville from 
Corry. This gave an eastern connection by both the Phila- 
delphia and Erie and the Atlantic and Great Western, but 
as the latter was constructing a branch from Meadville to 

[16] 



THE BIRTH OF AN INDUSTRY 

Franklin, the Oil Creek road became the feeder of the for- 
mer principally. Both of these roads were completed to Oil 
City by 1865. 

The railroads built, the vexatious, time-taking, and costly 
problem of getting the oil from the well to the shipping 
point still remained. The teamster was still the tyrant of the 
business. His day was almost over. He was to fall before the 
pipe-line. The feasibility of carrying oil in pipes was dis- 
cussed almost from the beginning of the oil business. Very 
soon after the Drake well was struck oil men began to say 
that the natural way to get this oil from the wells to the rail- 
roads was through pipes. In many places gravity would 
carry it; where it could not, pumps would force it. The belief 
that this could be done was so strong that as early as Febru- 
ary, 1862, a company was incorporated in Pennsylvania for 
carrying oil in pipes or tubes from any point on Oil Creek 
to its mouth or to any station on the Philadelphia and Erie 
Railroad. This company seems never to have done more than 
get a charter. In 1863 at least three short pipe-lines were put 
into operation. The first of these was a two-inch pipe, through 
which distillate was pumped a distance of three miles from 
the Warren refinery at Plumer to Warren's Landing on the 
Allegheny River. The one which attracted the most attention 
was a line two and one-half miles in length carrying crude 
oil from the Tarr farm to the Humboldt refinery at Plumer. 
Various other experiments were made, both gravity and 
pumps being trusted for propelling the oil, but there was 
always something wrong; the pipes leaked or burst, the 
pumps were too weak; shifting oil centres interrupted experi- 
ments which might have been successful. Then suddenly the 
man for the need appeared, Samuel Van Syckel. He came 
to the creek in 1864 with some money, hoping to make more. 
He handled quantities of oil produced at Pithole, several 
miles from a shipping point, and saw his profits eaten up 

[17] 



THE HISTORY OF THE STANDARD OIL COMPANY 

by teamsters. Their tyranny aroused his ire and his wits and 
he determined to build a pipe-line from the wells to the rail- 
road. He was greeted with jeers, but he went doggedly ahead, 
laid a two-inch pipe, put in three relay pumps, and turned 
in his oil. From the start the line was a success, carrying 
eighty barrels of oil an hour. The day that the Van Syckel 
pipe-line began to run oil a revolution began in the business. 
After the Drake well it is the most important event in the 
history of the Oil Regions. 

The teamsters saw its meaning first and turned out in fury, 
dragging the pipe, which was for the most part buried, to the 
surface, and cutting it so that the oil would be lost. It was 
only by stationing an armed guard that they were held in 
check. A second line of importance, that of Abbott and 
Harley, suffered even more than that of Van Syckel. The 
teamsters did more than cut the pipe; they burned the tanks 
in which oil was stored, laid in wait for employees, threatened 
with destruction the wells which furnished the oil, and so 
generally terrorised the country that the governor of the 
state was called upon in April, 1866, to protect the property 
and men of the lines. The day of the teamster was over, 
however, and the more philosophical of them accepted the 
situation; scores disappeared from the region, and scores more 
took to drilling. They died hard, and the cutting and plug- 
ging of pipe-lines was for years a pastime of the remnant of 
their race. 

If the uses to which oil might be put and the methods for 
manufacturing it had not been well understood when the 
Drake well was struck, there would have been no such impe- 
rious demand as came for the immediate opening of new 
territory and developing methods of handling and carrying 
it on a large scale. But men knew already what the oil 
was good for, and, in a crude way, how to distil it. 
The process of distillation also was free to all. The essential 

[18] 



THE BIRTH OF AN INDUSTRY 

apparatus was very simple — a cast-iron still, usually sur- 
rounded by brick-work, a copper worm, and two tin- or zinc- 
lined tanks. The still was filled with crude oil, which was 
subjected to a high enough heat to vapourise it. The vapour 
passed through a cast-iron goose-neck fitted to the top of the 
still into the copper worm, which was immersed in water. 
Here the vapour was condensed and passed into the zinc-lined 
tank. This product, called a distillate, was treated with 
chemicals, washed with water, and run off into the tin-lined 
tank, where it was allowed to settle. Anybody who could get 
the apparatus could "make oil," and many men did — badly, 
of course, to begin with, and with an alarming proportion of 
waste and explosions and fires, but with experience they 
learned, and some of the great refineries of the country grew 
out of these rude beginnings. 

Luckily not all the men who undertook the manufacturing 
of petroleum in these first days were inexperienced. The 
chemists to whom are due chiefly the processes now used — 
Atwood, Gessner, and Merrill — had for years been busy mak- 
ing oils from coal. They knew something of petroleum, and 
when it came in quantities began at once to adapt their 
processes to it. Merrill at the time was connected with Samuel 
Downer, of Boston, in manufacturing oil from Trinidad pitch 
and from coal bought in Newfoundland. The year oil was dis- 
:overed Mr. Downer distilled 7,500 tons of this coal, clear- 
ing on it at least $100,000. As soon as petroleum appeared 
le and Mr. Merrill saw that here was a product which was 
Dound to displace their coal, and with courage and prompt- 
less they prepared to adapt their works. In order to be near 
:he supply they came to Corry, fourteen miles from the Drake 
veil, and in 1862 put up a refinery which cost $250,000. Here 
vere refined thousands of barrels of oil, most of which was 
sent to New York for export. To the Boston works the firm 
sent crude, which was manufactured for the home trade and 

[ 19 ] 



THE HISTORY OF THE STANDARD OIL COMPANY 

for shipping to California and Australia. The processes used 
in the Downer works at this early day were in all essentials 
the same as are used to-day. 

In 1865 William Wright, after a careful study of 
"Petrolia," as the Oil Regions were then often called, pub- 
lished with Harper and Brothers an interesting volume in 
which he devotes a chapter to "Oil Refining and Refiners." 
Mr. Wright describes there not only the Downer works at 
Corry, but a factory which if much less important in the 
development of the Oil Regions held a much larger place 
in its imagination. This was the Humboldt works at Plumer. 
In 1862 two Germans, brothers, the Messrs. Ludovici, 
came to the oil country and, choosing a spot distant from 
oil wells, main roads, or water courses, erected an oil refin- 
ery which was reported to have cost a half million dollars. 
The works were built in a way unheard of then and uncom- 
mon now. The foundations were all of cut stone. The boiler 
and engines were of the most expensive character. A house 
erected in connection with the refinery was said to have 
been finished in hard wood with marble mantels, and fur- 
nished with rich carpets, mirrors, and elaborate furniture. 
The lavishness of the Humboldt refinery and the formality 
with which its business was conducted were long a tradition in 
the Oil Regions. Of more practical moment are the features of 
the refinery which Mr. Wright mentions: one is that the 
works had been so planned as to take advantage of the natural 
descent of the ground so that the oil would pass from one 
set of vessels to another without using artificial power, and the 
other that the supply of crude oil was obtained from the 
Tarr farm three miles away, being forced by pumps, through 
pipes, over the hills. 

Mr. Wright found some twenty refineries between Titus- 
ville and Oil City the year of his visit, 1865. In several facto- 
ries that he visited they were making naphtha, gasoline, and 

[20] 



THE BIRTH OF AN INDUSTRY 

benzine for export. Three grades of illuminating oils — "prime 
white," "standard white," and "straw colour" — were made 
everywhere; paraffine, refined to a pure white article like 
that of to-day, was manufactured in quantities by the Downer 
works; and lubricating oils were beginning to be made. 

As men and means were found to put down wells, to devise 
and build tanks and boats and pipes and railroads for handling 
the oil, to adapt and improve processes for manufacturing, 
so men were found from the beginning of the oil business 
to wrestle with every problem raised. They came in shoals, 
young, vigorous, resourceful, indifferent to difficulties, greedy 
for a chance, and with each year they forced more light and 
wealth from the new product. By the opening of 1872 t hey 
had produced nearly 40,000,000 barrels of oil, and had raised 
their produc_LlCLJJie.-iQuxth„ place amaag,.the expoxtsi-aLthe 
United States, over 152,000,000 gallons going abroad in 1871, 
a percentage of the production which compares well with 
what goes to-day.* As for the market, they had developed 
it until it included almost every country of the earth — China, 
the East and West Indies, South America and Africa. Over 
forty different European ports received refined oil from the 
United States in 1871. Nearly a million gallons were sent 
to Syria, about a half million to Egypt, about as much to the 
British West Indies, and a quarter of a million to the Dutch 
East Indies. Not only were illuminating oils being exported. 
In 1 871 nearly seven million gallons of naphtha, benzine, and 
gasoline were sent abroad, and it became evident now for 
the first time that a valuable trade in lubricants made from 
petroleum was possible. A discovery by Joshua Merrill of the 
Downer works opened this new source of wealth to the indus- 
try. Until 1869 the impossibility of deodorising petroleum 
had prevented its use largely as a lubricant, but in that year 

* In 1871 the petroleum export*? were 152,195,167 gallons. The production was 
5,795,000 barrels, or 243,390,000 gallons. 

[ 21 ] 



THE HISTORY OF THE STANDARD OIL COMPANY 

Mr. Merrill discovered a process by which a deodorised 
lubricating oil could be made. He had both the apparatus 
for producing the oil and the oil itself patented. The oil was 
so favourably received that the market sale by the Downer 
works was several hundred per cent, greater in a single year 
than the firm had ever sold before. 

The oil field had been extended from the valley of Oil 
Creek and its tributaries down the Allegheny River for fifty 
miles and probably covered 2,000 square miles. The early 
theory that oil followed the streams had been exploded, and 
wells were now drilled on the hills. It was known, too, that if 
oil was found in the first sand struck in the drilling, it 
might be found still lower in a second or third sand. The 
Drake well had struck oil at 69% feet, but wells were now 
drilled as deep as 1,600 feet. The extension of the field, the 
discovery that oil was under the hills as well as under streams, 
and to be found in various sands, had cost enormously. It had 
been done by "wild-catting," as putting down experimental 
wells was called, by following superstitions in locating wells, 
such as the witch-hazel stick, or the spiritualistic medium, 
quite as much as by studying the position of wells in existence 
and calculating how oil belts probably ran. As the cost of a 
well was from $3,000 to $8,000,* according to its location, and 
as 4,374 of the 5,560 wells drilled in the first ten years of the 
business (1859 t0 l %(>9) were "dry-holes," or were abandoned 
as unprofitable, something of the daring it took to operate on 
small means, as most producers did in the beginning, is evi- 
dent. But they loved the game, and every man of them would; 
stake his last dollar on the chance of striking oil. 

With the extension of the field rapid strides had been made 
in tools, in rigs, in all of the various essentials of drilling a 
well. They had learned to use torpedoes to open up hard rocks, 

* Estimate of J. T. Henry in his " Early and Later History of Petroleum," 1873. 
The " Petroleum Monthly" in 1873 estimated the cost to be from $2,725 to $4,416. 

[22] 



THE BIRTH OF AN INDUSTRY 

naphtha to cut the paraffine which coated the sand and stopped 
the flow of oil, seed bags to stop the inrush of a stream of 
water. They lost their tools less often, and knew better how 
to fish for them when they did. In short, they had learned 
how to put down and care for oil wells. 

Equal advances had been made in other departments, fewer 
cars were loaded with barrels, tank cars for carrying in bulk 
had been invented. The wooden tank holding 200 to 1,200 
barrels had been rapidly replaced by the great iron tank 
holding 20,000 or 30,000 barrels. The pipe-lines had begun 
to go directly to the wells instead of pumping from a general 
receiving station, or "dump," as it was called, thus saving 
the tedious and expensive operation of hauling. From begin- 
ning to end the business had been developed, systematised, 
simplified. 

Most important was the simplification of the transporta- 
tion problem by the development of pipe-lines. By 1872 they 
were the one oil gatherer. Several companies were carrying 
on the pipe-line business, and two of them had acquired great 
power in the Oil Regions because of their connection with 
trunk lines. These were the Empire Transportation Company 
and the Pennsylvania Transportation Company. The former, 
which had been the first business organisation to go into the 
pipe-line business on a large scale, was a concern which had 
appeared in the Oil Regions not over six months before Van 
Syckel began to pump oil. The Empire Transportation Com- 
pany had been organised in 1865 t0 build up an east and 
west freight traffic via the Philadelphia and Erie Railroad, 
a new line which had just been leased by the Pennsylvania. 
Some ten railroads connected in one way or another with 
the Philadelphia and Erie, forming direct routes east and 

I west. In spite of their evident community of interest these 
various roads were kept apart by their jealous fears of one 
another. Each insisted on its own time-table, its own rates, 



THE HISTORY OF THE STANDARD OIL COMPANY 

its own way of doing things. The shipper via this route must 
make a separate bargain with each road and often submit to 
having his freight changed at terminals from one car to an- 
other because of the difference of gauge. The Empire Trans- 
portation Company undertook to act as a mediator between the 
roads and the shipper, to make the route cheap, fast, and reli- 
able. It proposed to solicit freight, furnish its own cars and 
terminal facilities, and collect money due. It did not make 
rates, however; it only harmonised those made by the various 
branches in the system. It was to receive a commission on the 
business secured, and a rental for the cars and other facilities 
it furnished. 

It was a difficult task the new company undertook, but 
it had at its head a remarkable man to cope with difficulties. 
This man, Joseph D. Potts, was in 1865 thirty-six years old. 
He had come of a long and honourable line of iron-masters of 
the Schuylkill region of Pennsylvania, but had left the great 
forge towns with which his ancestors had been associated — 
Pottstown, Glasgow Forge, Valley Forge — to become a civil 
engineer. His profession had led him to the service of the 
Pennsylvania Railroad, where he had held important positions 
in connection with which he now undertook the organisation 
of the Empire Transportation Company. Colonel Potts — 
the title came from his service in the Civil War — possessed 
a clear and vigorous mind; he was far-seeing, forceful in 
execution, fair in his dealings. To marked ability and integrity 
he joined a gentle and courteous nature. 

The first freight which the Empire Transportation Com- 
pany attacked after its organisation was oil. The year was 
a great one for the Oil Regions, the year of Pithole. In January 
there had suddenly been struck on Pithole Creek in a wilder- 
ness six miles from the Allegheny River a well, located with 
a witch-hazel twig, which produced 250 barrels a day — and 
oil was selling at eight dollars a barrel! Wells followed in 

[24] 






THE BIRTH OF AN INDUSTRY 

rapid succession. In less than ten months the field was doing 
over 10,000 barrels a day. This sudden flood of oil caused a 
tremendous excitement. Crowds of speculators and investors 
rushed to Pithole from all over the country. The Civil War 
had just closed, soldiers were disbanding, and hundreds of 
them found their way to the new oil field. In six weeks after 
the first well was struck Pithole was a town of 6,000 inhab- 
itants. In less than a year it had fifty hotels and boarding- 
houses; five of these hotels cost $50,000 or more each. In six 
months after the first well the post-office of Pithole was receiv- 
ing upwards of 10,000 letters per day and was counted third 
in size in the state — Philadelphia, Pittsburg, and Pithole being 
the order of rank. It had a daily paper, churches, all the appli- 
ances of a town. 

The handling of the great output of oil from the Pithole 
field was a serious question. There seemed not enough cars 
in the country to carry it and shippers resorted to every imag- 
inable trick to get accommodations. When the agent of the 
Empire Transportation Company opened his office in June, 
1865, an d demonstrated his ability to furnish cars regularly 
and in large numbers, trade rapidly flowed to him. Now the 
Empire agency had hardly been established when the Van 
Syckel pipe-line began to carry oil from Pithole to the rail- 
road. Lines began to multiply. The railroads saw at once 
that they were destined speedily to do all the gathering and 
hastened to secure control of them. Colonel Potts's first pipe- 
line purchase was a line running from Pithole to Titusville, 
which as yet had not been wet. 

When the Empire Transportation Company took over this 
line nothing had been demonstrated but that oil could be 
driven, by relay pumps, five miles through a two-inch pipe. 
The Empire's first effort was to get a longer run by fewer 
pumps. The agent in charge, C. P. Hatch, believed that oil 
could be brought the entire ten and one-half miles from Pit- 

[25] 



THE HISTORY OF THE STANDARD OIL COMPANY 

hole to Titusville by one pump. He met with ridicule, but he 
insisted on trying it in the new line his company had acquired. 
The experiment was entirely successful. Improvements fol- 
lowed as rapidly as hands could carry out the suggestions of 
ingenuity and energy. One of the most important made the 
first year of the business was connecting wells by pipe directly 
with the tanks at the pumping stations, thus doing away with 
the expensive hauling in barrels to the "dump." A new device 
for accounting to the producer for his oil was made necessary 
by this change, and the practice of taking the gauge or meas- 
ure of the oil in the producer's tank before and after the run 
and issuing duplicate "run tickets" was devised by Mr. 
Hatch. The producers, however, were not all "square"; it 
sometimes happened that they sold oil by a transfer order on 
the pipe-line, which they did not have in the line! To prevent 
these the Empire Transportation Company in 1868 began to 
issue certificates for credit balances of oil ; these soon became 
the general mediums of trade in oil, and remain so to-day. 

One of the cleverest of the pipe-line devices of the Empire 
Company was its assessment for waste and fire. In running 
oil through pipes there is more or less lost by leaking and , 
evaporation. In September, 1868, Mr. Hatch announced that | 
thereafter he would deduct two per cent, from oil runs for |! 
wastage. The assessment raised almost a riot in the region,!! 
meetings were held, the Empire Transportation Company was I 
denounced as a highway robber, and threats of violence were 
made if the order was enforced. While this excitement was in | 
progress there came a big fire on the line. Now the company's 
officials had been studying the question of fire insurance from 
the start. Fires in the Oil Regions were as regular a feature of; 
the business as explosions used to be on the Mississippi steam- 
boats, and no regular fire insurance company would take the: 
risk. It had been decided that at the first fire there should be 
announced what was called a "general average assessment,"! 

[26] 



THE BIRTH OF AN INDUSTRY 

that is, a fire tax, and to be ready, blanks had been prepared. 
Now in the thick of the resistance to the wastage assessment 
came a fire and the line announced that the producers having 
oil in the line must pay the insurance. The controversy at once 
waxed hotter than ever, but was finally compromised by the 
withdrawal in this case of the fire insurance if the producers 
would consent to the tax for waste. They did consent, and 
later when fires occurred the general average assessment was 
applied without serious opposition. Both of these practices 
prevail to-day. By the end of 1871 the Empire Transportation 
Company was one of the most efficient and respected business 
organisations in the oil country. 

Its chief rival was the Pennsylvania Transportation Com- 
pany, an organisation which had its origin in the second pipe- 
line laid in the Oil Regions. This line was built by Henry 
Harley, a man who for fully ten years was one of the most 
brilliant figures in the oil country. Harley was a civil engineer 
tyy profession, a graduate of the Troy Polytechnic Institute, 
and had held a responsible position for some time as an assist- 
ant of General Herman Haupt in the Hoosac Tunnel. He 
became interested in the oil business in 1862, first as a buyer 
of petroleum, then as an operator in West Virginia. In 1865 
he laid a pipe-line from one of the rich oil farms of the creek 
to the railroad. It was a success, and from this venture Harley 
and his partner, W. H. Abbott, one of the wealthiest and 
most active men in the country, developed an important trans- 
portation system. In 1868 J ay Gould, who as president of the 
Erie road was eager to increase h is oil freight, bought a 
controlling interest in the Abbott and Ha rl ey lines, and made 
Harley "General Oil Agent" of the Erie system. Harley now 
became closely associated with Fisk and Gould, and the three 
carried on a series of bold and piratical speculations in oil 
which greatly enraged the oil country. They built a refinery 
near Jersey City, extended their pipe-line system, and in 1871, 

[27] 



THE HISTORY OF THE STANDARD OIL COMPANY 
when they reorganised under the name of the Pennsylvania 
Transportation Company, they controlled probably the great- 
est number of miles of pipe of any company in the region, 
and then were righting the Empire bitterly for freight. 

There is no part of this rapid development of the business 
more interesting than the commercial machine the oil men 
had devised by 1872 for marketing oil. A man with a 
thousand-barrel well on his hands in 1862 was in a plight. He 
had got to sell his oil at once for lack of storage room or 
let it run on the ground, and there was no exchange, no 
market, no telegraph, not even a post-office within his reach 
where he could arrange a sale. He had to depend on buyers 
who came to him. These buyers were the agents of the refin- 
eries in different cities, or of the exporters of crude in New 
York. They went from well to well on horseback, if the 
roads were not too bad, on foot if they were, and at each 
place made a special bargain varying with the quantity bought 
and the difficulty in getting it away, for the buyer was the 
transporter, and, as a rule, furnished the barrels or boats in 
which he carried off his oil. It was not long before the specu- 
lative character of the oil trade due to the great fluctuations 
in quantity added a crowd of brokers to the regular buyers 
who tramped up and down the creek. When the railroads 
came in the trains became the headquarters for both buyers 
and sellers. This was the more easily managed as the trains on 
the creek stopped at almost every oil farm. These trains 
became, in fact, a sort of travelling oil exchange, and on them 
a large percentage of all the bargaining of the business was 
done. 

The brokers and buyers first organised and established 
headquarters in Oil City in 1869, but there was an oil exchange 
in New York City as early as 1866. Titusville did not have 
an exchange until 1871. By this time the pipe-lines had begun 
to issue certificates for the oil they received, and the trading 

[28] 



THE BIRTH OF AN INDUSTRY 

was done to a degree in these. The method was simple, and 
much more convenient than the old one. The producer ran 
his oil into a pipe-line, and for it received a certificate show- 
ing that the line held so much to his credit; this certificate 
was transferred when the sale was made and presented when 
the oil was wanted. 

One achievement of which the oil men were particularly 
proud was increasing the refining capacity of the region. At 
the start the difficulty of getting the apparatus for a refinery 
to the creek had been so enormous that the bulk of the crude 
had been driven to the nearest manufacturing cities — Erie, 
Pittsburgh Cleveland. Much had gone to the seaboard, too, 
and Boston, New York, Philadelphia and Baltimore were.£V/ 
all doing considerable refining. There was always a strong 
feeling in the Oil Regions that the refining should be done at 
home. Before the railroads came the most heroic efforts were 
made again and again to get in the necessary machinery. 
Brought from Pittsburg by water, as a rule, the apparatus 
had to be hauled from Oil City, where it had been dumped on 
the muddy bank of the river — there were no wharfs — over 
the indescribable roads to the site chosen. It took weeks — 
months sometimes — to get in the apparatus. The chemicals 
used in the making of the oil, the barrels in which to store 
it — all had to be brought from outside. The wonder is that 
under these conditions anybody tried to refine on the creek. 
But refineries persisted in coming, and after the railroads 
came, increased; by 1872 the daily capacity had grown to 
nearly 10,000 barrels, and there were no more complete or 
profitable plants in existence than two or three of those on the 
creek. The only points having larger daily capacity were 
Cleveland and New York City. Several of the refineries had 
added barrel works. Acids were made on the ground. Iron 
works at Oil City and Titusville promised soon to supply 
the needs of both drillers and refiners. The exultation was 

[29] 



THE HISTORY OF THE STANDARD OIL COMPANY 
great, and the press and people boasted that the day would 
soon come when they would refine for the world. There in 
their own narrow valleys should be made everything which 
petroleum would yield. Cleveland, Pittsburg— the Seaboard 
—must give up refining. The business belonged to the Oil 
Regions, and the oil men meant to take it. 

A significant development in the region was the tendency 
among many of the oil men to combine different branches of 
the business. Several large producers conducted shipping 
agencies for handling their own and other people's oil. The 
firm of Pierce and Neyhart was a prominent one carrying on 
this double business in the sixties and early seventies. J. J. 
Vandergrift, who has been mentioned already as one of the 
first men to take hold of the transportation problem, early 
became interested in production. As soon as the pipe-line was 
demonstrated to be a success he began building lines. He also 
added to his interests a large refinery, the Imperial of Oil 
City. Captain Vandergrift by 1870 produced, transported 
and refined his own oil as well as transported and refined much 
of other people's. It was a common practice for a refinery in 
the Oil Regions to pipe oil directly to its works by its own 
line, and in 1872 one refinery in Titusville, the Octave, carried 
its refined oil a mile or more by pipe to the railroad. Although 
most of the refineries at this period sold their products to 
dealers and exporters, the building up of markets by direct 
contact with new territory was beginning to be a consideration 
with all large manufacturers. The Octave of Titusville, for 
instance, chartered a ship in 1872 to load with oil and send 
in charge of its own agent into South American ports. 

The odds against the oil men in developing the business 
had not been merely physical ones. There had been more 
than the wilderness to conquer, more than the possibilities of 
a new product to learn. Over all the early years of their 
struggle and hardships hovered the dark cloud of the Civil 

[30] 



THE BIRTH OF AN INDUSTRY 

War. They were so cut off from men that they did not hear 
of the fall of Sumter for four days after it happened, and the 
news for the time blotted out interest even in flowing wells. 
Twice at least when Lee invaded Pennsylvania the whole 
business came to a stand-still, men abandoning the drill, the 
pump, the refinery to make ready to repel the invader. They 
were taxed for the war — taxes rising to ten dollars per barrel 
in 1865 — one dollar on crude and twenty cents a gallon on 
refined (the oil barrel is usually estimated at forty- two 
gallons). They gave up their quota of men again and again 
at the call for recruits, and when the end came and a million 
men were cast on the country, this little corner of Pennsyl- 
vania absorbed a larger portion of men probably than any 
other spot in the United States. The soldier was given the 
first chance everywhere at work, he was welcomed into oil 
companies, stock being given him for the value of his war 
record. There were lieutenants and captains and majors — 
even generals — scattered all over the field, and the field felt 
itself honoured, and bragged, as it did of all things, of the 
number of privates and officers who immediately on disband- 
ment had turned to it for employment. 

It was not only the Civil War from which the Oil Regions 
had suffered; in 1870 the Franco-Prussian War broke the 
foreign market to pieces and caused great loss to the whole 
industry. And there had been other troubles. From the first, 
oil men had to contend with wild fluctuations in the price of 
oil. In 1859 it was twenty dollars a barrel, and in 1861 it had 
averaged fifty-two cents. Two years later, in 1863, lt averaged 
$8.15, and in 1867 but $2.40. In all these first twelve years 
nothing like a steady price could be depended on, for just as 
the supply seemed to have approached a fixed amount, a 
"wildcat" well would come in and "knock the bottom out of 
the market." Such fluctuations were the natural element of 
the speculator, and he came early, buying in quantities and 

[31] 



THE HISTORY OF THE STANDARD OIL COMPANY 
holding in storage tanks for higher prices. If enough oil 
was held, or if the production fell off, up went the price, only 
to be knocked down by the throwing of great quantities of 
stocks on the market. The producers themselves often held 
their oil, though not always to their own profit. A historic 
case of obstinate holding occurred in 1871 on the "McCray 
farm," the most productive field in the region at that time. 
Prices were hovering around three dollars, and McCray swore 
he would not sell under five dollars. He bought, hired and 
built iron tankage until he had upward of 200,000 barrels. 
There was great loss from leakage and from evaporation and 
there were taxes, but McCray held on, refusing four dollars, 
$4.50, and even five dollars. Evil times came in the Oil Regions 
soon after and with them "dollar oil." McCray finally was 
obliged to sell his stocks at about $1.20 per barrel. To develop 
a business in face of such fluctuations and speculation in the 
raw product took not only courage — it took a dash of the 
gambler. It never could have been done, of course, had it 
not been for the streams of money which flowed unceasingly 
and apparently from choice into the regions. In 1865 Mr. 
Wright calculated that the oil country was using a capital of 
$100,000,000. In 1872 the oil men claimed the capital in 
operation was $200,000,000. It has been estimated that in the 
first decade of the industry nearly $350,000,000 was put into it. 
Speculation in oil stock companies was another great evil. 
It reached its height in 1864 and 1865 — the "flush times" of 
the business. Stocks in companies whose holdings were hardly 
worth the stamps on the certificates were sold all over the land. 
In March, 1865, the aggregate capital of the oil companies 
whose charters were on file in Albany, New York, was $350,- 
000,000, and in Philadelphia alone in 1864 and 1865 1,000 
oil companies, mostly bogus, are said to have been formed. 
These swindles were dignified by the names of officers of 
distinction in the United States army, for the war was coming 

[32] 



THE BIRTH OF AN INDUSTRY 

to an end and the name of a general was the most popular 
and persuasive argument in the country. Of course there came 
a collapse. The "oil bubble" burst in 1866, and it was noth- 
ing but the irrepressible energy of the region which kept the 
business going in the panic which followed. 

Then there was the disturbing effect of foreign competition. 
What would become of them if oil was found in quantities in 
other countries? A decided depression of the market occurred 
in 1866 when the government sent out reports of developments 
of foreign oil fields. If there was oil in Japan, China, Burmah, 
Persia, Russia, Bavaria, in the quantities the government 
reports said, why, there was trouble in store for Pennsylvania, 
the oil men argued, and for a day the market fell — it was only 
for a day. Men forgot easily in the Oil Regions in the sixties. 

An evil in their business which they were only beginning 
to grasp fully in 1871 was the unholy system of freight dis- 
crimination which the railroads were practising. Three trunk 
lines competed for the business by 1872 — the Pennsylvania, 
which had leased the Philadelphia and Erie, the Erie and 
the Central. (The latter road reached the Oil Regions by a 
branch from Ashtabula on the Lake Shore and Michigan 
Southern division to Oil City; this branch was completed in 
1868.) The Pennsylvania claimed the oil traffic as a natural 
right; for the Oil Regions were in Pennsylvania, and did not 
Tom Scott own that state? The Erie road for about five years 
had been in the hands of those splendid pirates, Jay Gould and 
"Jim" Fisk. Naturally they took all they could get of the 
oil traffic and took it by freebooting methods. "Corners" and 
"rings" were their favourite devices for securing trade, and 
more than once their aid had carried through daring and 
unscrupulous speculations in oil. The Central in this period 
was waging its famous desperate war on the Erie, Commodore 
Vanderbilt having marked that highway for his own along 
with most other things in New York State. All three of the 

[33] 



THE HISTORY OF THE STANDARD OIL COMPANY 

roads began as early as 1868 to use secret rebates on the 
published freight rates in oil as a means of securing traffic. 
This practice had gone on until in 1871 any big producer, 
refiner, or buyer could bully a freight agent into a special 
rate. Those "on the inside," those who had "pulls," also 
secured special rates. The result was that the open rate was 
enforced only on the innocent and the weak. 

Serious as all these problems were, there was no discourage- 
ment or shrinking from them. The oil men had rid themselves 
of bunco men and burst the "oil bubbles." They had harnessed 
the brokers in exchanges and made strict rules to govern them. 
They had learned not to fear the foreigners, and to take with 
equal sang froid the "dry-hole" which made them poor, or 
the "gusher" which made them rich. For every evil they had 
a remedy. They were not afraid even of the railroads, and 
loudly declared that if the discriminations were not stopped 
they would build a railroad of their own. Indeed, the evils 
in the oil business in 1871, far from being a discouragement, 
rather added to the interest. They had never known anything 
but struggle — with conquest — and twelve years of it was far 
from cooling their ardour for a fair fight. 

More had been done in the Oil Regions in the first dozen 
years than the development of a new industry. From the first 
there had gone with the oil men's ambition to make oil to 
light the whole earth a desire to bring civilisation to the 
wilderness from which they were drawing wealth, to create 
an orderly society from the mass of humanity which poured 
pell-mell into the region. A hatred of indecency first drew 
together the better element of each of the rough communities 
which sprang up. Whiskey-sellers and women flocked to the 
region at the breaking out of the excitement. Their first 
shelters were shanties built on flatboats which were towed 
from place to place. They came to Rouseville — a collection of 
pine shanties and oil derricks, built on a muddy flat — as for- 

[34] 



/ r / 



nurt noun m% 






r 1848^ 

Discovered », Rorin 
for .SALT WAT KK 



gSM 



<p 18490 

,— Voiuk-ri'ul -^ 

medical vihites 






-lisaa-lJM ■' ,—.*„■, 



V 



.1- p 



>,/<•/•/ FOTTIt 'ui irjHIXaa^l FEET /,'/(■»■ - J ,' 



• ft! '• v 



c ihe£arm su/fece. is pumped up teitfi the SW/ ?/'u/</:/f<,i, \\ tMo the {bstent,, mi I m 
Hp! floats on top.Hrfv'tt a ai/MiiJjtp accuitufhiMi, is dmum r/f //>/>> /<>//•/><•', ^™ ' 
ts batfJedw.ih twtttruf ■•■/<//<' in'thcnf />*/> •pnwttvt'rti /t'*fdnitrt/tn\ 






-fA'Sm^ 



FAC-SIMILE OF A LABEL USED BY S. M. KIER IN ADVERTISING ROCK-OIL OBTAINED IN 
DRILLING SALT WELLS NEAR TARENTUM, PENNSYLVANIA 




THE BIRTH OF AN INDUSTRY 

lorn and disreputable a town in appearance as the earth ever 
saw. They tied up for trade, and the next morning woke up 
from their brawl to find themselves twenty miles away, float- 
ing down the Allegheny River. Rouseville meant to be decent. 
She had cut them loose, and by such summary vigilance she 
kept herself decent. Other towns adopted the same policy. 
By common consent vice was corralled largely in one town. 
Here a whole street was given up to dance-houses and saloons, 
and those who must have a "spree" were expected to go to 
Petroleum Centre to take it. 

Decency and schools! Vice cut adrift, they looked for a 
school teacher. Children were sadly out of place, but there 
they were, and these men, fighting for a chance, saw to it that 
a shanty, with a school teacher in it, was in every settlement. 

»was not long, too, before there was a church, a union 
urch. To worship God was their primal instinct; to defend 
creed a later development. In the beginning every social 
contrivance was wanting. There were no policemen, and each 
individual looked after evil-doers. There were no firemen, 
and every man turned out with a bucket at a fire. There were 
no bankers, and each man had to put his wealth away as best he 
could until a peripatetic banker from Pittsburg relieved him. 
At one time Dr. Egbert, a rich operator, is said to have had 
$1,800,000 in currency in his house. There were no hospitals, 
and in 1861, when the horrible possibilities of the oil fire were 
first demonstrated by the burning of the Rouse well, a fire 
at which nineteen persons lost their lives, the many injured 
found welcome and care for long weeks in the little shanties 
of women already o\w,rburdened by the difficulties of caring 
for families in the rough community. 

Out of this poverty and disorder they had developed in 
ten years a social organisation as good as their commercial. 
Titusville, the hamlet on whose outskirts Drake had drilled 

I; well, was now a city of 10,000 inhabitants. It had an opera 
I*, 



THE HISTORY OF THE STANDARD OIL COMPANY 

house, where in 1871 Clara Louise Kellogg and Christine 
Nilsson sang, Joe Jefferson and Janauschek played, and Wen- 
dell Phillips and Bishop Simpson spoke. It had two prosper- 
ous and fearless newspapers. Its schools prepared for college. 
Oil City was not behind, and between them was a string of 
lively towns. Many of the oil farms had a decent community 
life. The Columbia farm kept up a library and reading-room 
for its employees ; there was a good schoolhouse used on Sun- 
day for services, and there was a Columbia farm band of no 
mean reputation in the Oil Regions. 

Indeed, by the opening of 1872, life in the Oil Regions had 
ceased to be a mere make-shift. Comforts and orderliness and 
decency, even opportunities for education and for social life, 
were within reach. It was a conquest to be proud of, quite as 
proud of as they were of the fact that their business had been 
developed until it had never before, on the whole, been in so 
satisfactory a condition. 

Nobody realised more fully what had been accomplished 
in the Oil Regions than the oil men themselves. Nobody 
rehearsed their achievements so loudly. "In ten years," they 
were fond of saying, "we have built this business up from 
nothing to a net product of six millions of barrels per annum. 
We have invented and devised all the apparatus, the appli- 
ances, the forms needed for a new industry. We use a capital 
of $200,000,000, and support a population of 60,000 people. 
To keep up our supply we drill 100 new wells per month, 
at an average cost of $6,000 each. We are fourth in the exports 
of the United States. We have developed a foreign market, 
including every civilised country on the globe." 

But what had been done was, in their judgment, only a 
beginning. Life ran swift and ruddy and joyous in these men. 
They were still young, most of them under forty, and they 
looked forward with all the eagerness of the young who have 
just learned their powers, to years of struggle and develop- 

[3*1 



THE BIRTH OF AN INDUSTRY 

ment. They would solve all these perplexing problems of over- 
production, of railroad discrimination, of speculation. They 
would meet their own needs. They would bring the oil refin- 
ing to the region where it belonged. They would make their 
towns the most beautiful in the world. There was nothing too 
good for them, nothing they did not hope and dare. But sud- 
denly, at the very heyday of this confidence, a big hand 
reached out from nobody knew where, to steal their conquest 
and throttle their future. The suddenness and the blackness 
of the assault on their business stirred to the bottom their 
manhood and their sense of fair play, and the whole region 
arose in a revolt which is scarcely paralleled in the commer- 
cial history of the United States. 






<~~- uj t ■ 






• 



















[37] 



CHAPTER TWO 
THE RISE OF THE STANDARD OIL COMPANY 

JOHN D. ROCKEFELLER'S FIRST CONNECTION WITH THE OIL BUSINESS— 
STORIES OF HIS EARLY LIFE IN CLEVELAND — HIS FIRST PARTNERS- 
ORGANISATION OF THE STANDARD OIL COMPANY IN JUNE, 1870— ROCKE- 
FELLER'S ABLE ASSOCIATES— FIRST EVIDENCE OF RAILWAY DISCRIMINA- 
TIONS IN THE OIL BUSINESS— REBATES FOUND TO BE GENERALLY GIVEN 
TO LARGE SHIPPERS— FIRST PLAN FOR A SECRET COMBINATION— THE 
SOUTH IMPROVEMENT COMPANY— SECRET CONTRACTS MADE WITH THE 
RAILROADS PROVIDING REBATES AND DRAWBACKS— ROCKEFELLER AND 
ASSOCIATES FORCE CLEVELAND REFINERS TO JOIN THE NEW COMBINA- 
TION OR SELL— RUMOUR OF THE PLAN REACHES THE OIL REGIONS. 

THE chief refining competitor of Oil Creek in 1872 
was Cleveland, Ohio. Since 1869 mat clt Y nac * done 
annually more refining than any other place in the 
country. Strung along the banks of Walworth and 
Kingsbury Runs, the creeks to which the city frequently ban- 
ishes her heavy and evil-smelling burdens, there had been 
since the early sixties from twenty to thirty oil refineries. Why 
they were there, more than 200 miles from the spot where 
the oil was taken from the earth, a glance at a map of the 
railroads of the time will show: By rail and water Cleveland 
commanded the entire Western market. It had two trunk lines 
running to New York, both eager for oil traffic, and by Lake 
Erie and the canal it had for a large part of the year a 
splendid cheap waterway. Thus, at the opening of the oil 
business, Cleveland was destined by geographical position to 
be a refining center. 

Men saw it, and hastened to take advantage of the opportu- I 
nity. There was grave risk. The oil supply might not hold 

[38] 



THE RISE OF THE STANDARD OIL COMPANY 

out. As yet there was no certain market for refined oil. But 
a sure result was not what drew people into the oil business 
in the early sixties. Fortune was running fleet-footed across 
the country, and at her garment men clutched. They loved 
the chase almost as they did success, and so many a man in 
Cleveland tried his luck in an oil refinery, as hundreds on 
Oil Creek were trying it in an oil lease. By 1865 there were 
thirty refineries in the town, with a capital of about a million 
and a half dollars and a daily capacity of some 2,000 barrels. 
The works multiplied rapidly. The report of the Cleveland 
Board of Trade for 1866 gives the number of plants at the 
end of that year as fifty, and it dilates eloquently on the 
advantages of Cleveland as a refining point over even Pitts- 
burg, to that time supposed to be the natural centre for the 
business. If the railroad and lake transportation men would 
but adopt as liberal a policy toward the oil freights of Cleve- 
land as the Pennsylvania Railroad was adopting toward that of 
Pittsburg, aided by her natural advantages the town was bound 
to become the greatest oil refining centre in the United States. 
By 1868 the Board of Trade reported joyfully that Cleveland 
was receiving within 300,000 barrels as much oil as Pitts- 
burg. In 1869 sne surpassed all competitors. "Cleveland now 
claims the leading position among the manufacturers of petro- 
leum with a very reasonable prospect of holding that rank 
for some time to come," commented the Board of Trade 
report. "Each year has seen greater consolidation of capital, 
greater energy and success in prosecuting the business, and, 
notwithstanding some disastrous fires, a stronger determina- 
tion to establish an immovable reputation for the quantity and 
quality of this most important product. The total capital 
nvested in this business is not less than four millions of 
lollars and the total product of the year would not fall short 
if fifteen millions." 
Among the many young men of Cleveland who, from the 

[39] 



THE HISTORY OF THE STANDARD OIL COMPANY 
start, had an eye on the oil-refining business and had begun 
to take an active part in its development as soon as it was 
demonstrated that there was a reasonable hope of its being 
permanent, was a young firm of produce commission mer- 
chants. Both members of this firm were keen business men, 
and one of them had remarkable commercial vision — a genius 
for seeing the possibilities in material things. This man's 
name was Rockefeller — John D. Rockefeller. He was but 
twenty-three years old when he first went into the oil business, 
but he had already got his feet firmly on the business ladder, 
and had got them there by his own efforts. The habit of driv- 
ing good bargains and of saving money had started him. He 
himself once told how he learned these lessons so useful in 
money-making, in one of his frequent Sunday-school talks to 
young men on success in business. The value of a good bar- 
gain he learned in buying cord-wood for his father: "I knew 
what a cord of good solid beech and maple wood was. My 
father told me to select only the solid wood and the straight 
wood and not to put any limbs in it or any punky wood. That 
was a good training for me. I did not need any father to tell 
me or anybody else how many feet it took to make a cord 
of wood." 

And here is how he learned the value of investing money: 
"Among the early experiences that were helpful to me that 
I recollect with pleasure was one in working a few days for 
a neighbour in digging potatoes — a very enterprising, thrifty 
farmer, who could dig a great many potatoes. I was a boy of 
perhaps thirteen or fourteen years of age, and it kept me very 
busy from morning until night. It was a ten-hour day. And 
as I was saving these little sums I soon learned that I could 
get as much interest for fifty dollars loaned at seven per cent. 
— the legal rate in the state of New York at that time for a 
year — as I could earn by digging potatoes for ioo days. 
The impression was gaining ground with me that it was a 

[40] 



THE RISE OF THE STANDARD OIL COMPANY 

good thing to let the money be my slave and not make myself 
a slave to money." Here we have the foundation principles of 
a great financial career. 

When young Rockefeller was thirteen years old, his father 
moved from the farm in Central New York, where the boy 
had been born (July 8, 1839), to a farm near Cleveland, Ohio. 
He went to school in Cleveland for three years. In 1855 it 
became necessary for him to earn his own living. It was a hard 
year in the West and the boy walked the streets for days look- 
ing for work. He was about to give it up and go to the country 
when, to quote the story as Mr. Rockefeller once told it to his 
Cleveland Sunday-school, "As good fortune would have it I 
went down to the dock and made one more application, and I 
was told that if I would come in after dinner — our noon-day 
meal was dinner in those days — they would see if I could come 
to work for them. I went down after dinner and I got the posi- 
tion, and I was permitted to remain in the city." The position, 
that of a clerk and bookkeeper, was not lucrative. Accord- 
ing to a small ledger which has figured frequently in Mr. 
Rockefeller's religious instructions, he earned from Septem- 
ber 26, 1855, to January, 1856, fifty dollars. "Out of that," Mr. 
Rockefeller told the young men of his Sunday-school class, "I 
paid my washerwoman and the lady I boarded with, and I 
saved a little money to put away." 

He proved an admirable accountant — one of the early-and- 
late sort, who saw everything, forgot nothing and never 
talked. In 1856 his salary was raised to twenty-five dollars a 
month, and he went on always "saving a little money to put 
away." In 1858 came a chance to invest his savings. Among his 
acquaintances was a young Englishman, M. B. Clark. Older 
by twelve years than Rockefeller he had left a hard life in 
England when he was twenty to seek fortune in America. 
He had landed in Boston in 1847, without a penny or a friend, 
and it had taken three months for him to earn money to get 

[4i] 



THE HISTORY OF THE STANDARD OIL COMPANY 

to Ohio. Here he had taken the first job at hand, as man-of- 
all-work, wood-chopper, teamster. He had found his way to 
Cleveland, had become a valuable man in the houses where 
he was employed, had gone to school at nights, had saved 
money. They were two of a kind, Clark and Rockefeller, and 
in 1858 they pooled their earnings and started a produce com- 

Bobr Prank, cabinet maker, bds 17 Johnson 

BOBY E. W. A CO. (Edward W. Roby and. William H> 

Keith), wood and coal, C.4P.R.R. Coal Pier, and 

Merwin n Columbus St. Bridge 
Rochert Conrad, h 17$ St Clair 
Rock John, bar keeper, bds 11 Public Square 
ROCKAPELLOW JOHN J., coal,a&P.R.R.CoalPtaf, 

h 183 Prospect 
Rockefeller John D., book-keeper, h 34 Cedar 
Rockefeller William, physician, h 85 Cedar »r 
Rockett Morris, rectifier,' h 182 St Clair 
Rockwell Edward, Sec C. A P. R. R, bds Weddell House 

Fragment of a page in the city directory of Cleveland, Ohio, for 1857. This is the first year in 
which the name John D. Rockefeller appears in the directory. The same entry is made in 1858. The 
next year, 1859, Mr. Rockefeller is entered as a member of the firm of Clark and Rockefeller. 

mission business on the Cleveland docks. The venture suc- 
ceeded. Local historians credit Clark and Rockefeller with 
doing a business of $450,000 the first year. The war came on, 
and as neither partner went to the front, they had full chance 
to take advantage of the opportunity for produce business a 
great army gives. A greater chance than furnishing army 
supplies, lucrative as most people found that, was in the oil 
business (so Clark and Rockefeller began to think), and in 
1862, when an Englishman of ability and energy, one Samuel 
Andrews, asked them to back him in starting a refinery, they 
put in $4,000 and promised to give more if necessary. Now 
Andrews was a mechanical genius. He devised new processes 
made a better and better quality of oil, got larger and largei 
percentages of refined from his crude. The little refinery gre\A 
big, and Clark and Rockefeller soon had $100,000 or more ir 
it. In the meantime Cleveland was growing as a refining 

[42] 



THE RISE OF THE STANDARD OIL COMPANY 
centre. The business which in i860 had been a gamble was 
by 1865 one °f tne most promising industries of the town. 
It was but the beginning — so Mr. Rockefeller thought — 
and in that year he sold out. his -share~aL the commission 
business and put his money into the oil firm of Rockefeller 
and Andrews. 

In the new firm Andrews attended to the manufacturing. 

The pushing of the business, the buying and the selling, fell 

to Rockefeller. From the start his effect was tremendous. 

He had the frugal man's hatred of waste and disorder, of 

middlemen and unnecessary manipulation, and he began a 

' vigorous elimination of these from his business. The residuum 

that other refineries let run into the ground, he sold. Old iron 

found its way to the junk shop. He bought his oil directly 

from the wells. He made his own barrels. He watched and 

; saved and contrived. The ability with which he made the 

smallest bargain furnishes topics to Cleveland story-tellers 

I 1 to-day. Low-voiced, soft-footed, humble, knowing every point 

in every man's business, he never tired until he got his wares 

at the lowest possible figure. "John always got the best of the 

I bargain," old men tell you in Cleveland to-day, and they wince 

[ though they laugh in telling it. "Smooth," "a savy fellow," is 

I their description of him. To drive a good bargain was the 

I joy of his life. "The only time I ever saw John Rockefeller 

J enthusiastic," a man told the writer once, "was when a report 

j came in from the creek that his buyer had secured a cargo 

I of oil at a figure much below the market price. He bounded 

1 from his chair with a shout of joy, danced up and down, 

hugged me, threw up his hat, acted so like a madman that I 

I have never forgotten it." 

He could borrow as well as bargain. The firm's capital was 

limited; growing as they were, they often needed money, and 

1 had none. Borrow they must. Rarely if ever did Mr. Rocke- 

; feller fail. There is a story handed down in Cleveland from 

[43] 



THE HISTORY OF THE STANDARD OIL COMPANY 

the days of Clark and Rockefeller, produce merchants, which 
is illustrative of his methods. One day a well-known and rich 
business man stepped into the office and asked for Mr. Rocke- 
feller. He was out, and Clark met the visitor. "Mr. Clark," 
he said, "you may tell Mr. Rockefeller, when he comes in, 
that I think I can use the $10,000 he wants to invest with me 
for your firm. I have thought it. all over." 

"Good God!" cried Clark, "we don't want to invest $10,000. 
John is out right now trying to borrow $5,000 for us." 

It turned out that to prepare him for a proposition to bor- 
row $5,000 Mr. Rockefeller had told the gentleman that he 
and Clark wanted to invest $10,000! 

"And the joke of it is," said Clark, who used to tell the 
story, "John got the $5,000 even after I had let the cat out of 
the bag. Oh, he was the greatest borrower you ever saw!" 

These qualities told. The firm grew as rapidly as the oil 
business of the town, and started a second refinery — William 
A. Rockefeller and Company. They took in a partner, H. M. 
Flagler, and opened a house in New York for selling oil. Of 
all these concerns John D. Rockefeller was the head. Finally, 
in June, 1870, five years after he became an active partner 
in the refining business, Mr. Rockefeller combined all his 
companies into one — the Standard Oil Company. The capi- 
tal of the new concern was $1,000,000. The parties inter- 
ested in it were John D. Rockefeller, Henry M. Flag- 
ler, Samuel Andrews, Stephen V. Harkness, and William 
Rockefeller.* 

The strides the firm of Rockefeller and Andrews made after 
the former went into it were attributed for three or four years 
mainly to his extraordinary capacity for bargaining and bor- 
rowing. Then its chief competitors began to suspect some- 
thing. John Rockefeller might get his oil cheaper now and 

* See Appendix, Number 2. First act of incorporation of the Standard Oil 
Company. 

[44] 



THE RISE OF THE STANDARD OIL COMPANY 

then, they said, but he could not do it often. He might make 
close contracts for which they had neither the patience nor 
the stomach. He might have an unusual mechanical and 
practical genius in his partner. But these things could not 




Map of Northwestern Pennsylvania, showing the relation of the Oil Regions to the rail- 
roads in 1859, when oil was " discovered." 

explain all. They believed they bought, on the whole, almost 
as cheaply as he, and they knew they made as good oil and 
with as great, or nearly as great, economy. He could sell at 

[45] 



THE HISTORY OF THE STANDARD OIL COMPANY 

no better price than they. Where was his advantage? There 
was but one place where it could be, and that was in trans- 
portation. He must be getting better rates from the railroads 
than they were. In 1868 or 1869 a member of a rival firm long 
in the business, which had been prosperous from the start, 
and which prided itself on its methods, its economy and its 
energy, Alexander, Scofield and Company, went to the Atlantic 
and Great Western road, then under the Erie management, 
and complained. "You are giving others better rates than you 
are us," said Mr. Alexander, the representative of the firm. 
"We cannot compete if you do that." The railroad agent did 
not attempt to deny it — he simply agreed to give Mr. Alex- 
ander a rebate also. The arrangement was interesting. Mr. 
Alexander was to pay the open, or regular, rate on oil from 
the Oil Regions to Cleveland, which was then forty cents 
a barrel. At the end of each month he was to send to the rail- 
road vouchers for the amount of oil shipped and paid for 
at forty cents, and was to get back from the railroad, in money, 
fifteen cents on each barrel. This concession applied only to oil 
brought from the wells. He was never able to get a rebate 
on oil shipped eastward.* According to Mr. Alexander, the 
Atlantic and Great Western gave the rebates on oil from the 
Oil Regions to Cleveland up to 1871 and the system was then 
discontinued. Late in 1871, however, the firm for the first time 
got a rebate on the Lake Shore road on oil brought from the 
field. 

Another Cleveland man, W. H. Doane, engaged in ship- 
ping crude oil, began to suspect about the same time as Mr. 
Alexander that the Standard was receiving rebates. Now Mr. 
Doane had always been opposed to the "drawback business," 
but it was impossible for him to supply his customers with 
crude oil at as low a rate as the Standard paid if it received a 

* Testimony of Mr. Alexander before the Committee of Commerce of the United 
States House of Representatives, April, 1872. 

[46] 



THE RISE OF THE STANDARD OIL COMPANY 

rebate and he did not, and when it was first generally rumoured 
in Cleveland that the railroads were favouring Mr. Rockefeller 
he went to see the agent of the road. "I told him I did not 
want any drawback, unless others were getting it; I wanted 
it if they were getting it, and he gave me at that time ten cents 
drawback." This arrangement Mr. Doane said had lasted 
but a short time. At the date he was speaking — the spring of 
1872 — he had had no drawback for two years. 

A still more important bit of testimony as to the time when 
rebates first began to be given to the Cleveland refiners and as 
to who first got them and why, is contained in an affidavit 
made in 1880 by the very man who made the discrimination.* 
This man was General J. H. Devereux, who in 1868 suc- 
ceeded Amasa Stone as vice-president of the Lake Shore Rail- 
road. General Devereux said that his experience with the oil 
traffic had begun with his connection with the Lake Shore; 
that the only written memoranda concerning oil which he 
found in his office on entering his new position was a book in 
which it was stated that the representatives of the twenty- five 
oil-refining firms in Cleveland had agreed to pay a cent a gal- 
lon on crude oil removed from the Oil Regions. General Deve- 
reux says that he soon found there was a deal of trouble in 
store for him over oil freight. The competition between the 
twenty-five firms was close, the Pennsylvania was "claiming 
a patent right" on the transportation of oil and was putting 
forth every effort to make Pittsburg and Philadelphia the 
chief refining centres. Oil Creek was boasting that it was 
going to be the future refining point for the world. All of 
this looked bad for what General Devereux speaks of as the 
"then very limited refining capacity of Cleveland." This 
remark shows how new he was to the business, for, as we have 

* See Appendix, Number 3 . Affidavit of James H. Devereux. At the time 
General Devereux made this affidavit, 1880, he was president of the New York, 

I Pennsylvania and Ohio Railroad. 
[47] 



THE HISTORY OF THE STANDARD OIL COMPANY 

already seen, Cleveland in 1868 had anything but a limited 
refining capacity. Between three and four million dollars were 
invested in oil refineries, and the town was receiving within 
35,000 barrels of as much oil as New York City, and within 
300,000 as much as Pittsburg, and it was boasting that the 
next year it would outstrip these competitors, which, as a 
matter of fact, it did. 

The natural point for General Devereux to consider, of 
course, was whether he could meet the rates the Pennsyl- 
vania were giving and increase the oil freight for the Lake 
Shore. The road had a branch running to Franklin, Pennsyl- 
vania, within a few miles of Oil City. This he completed, and 
then, as he says in his affidavit, "a sharper contest than ever was 
produced growing out of the opposition of the Pennsylvania 
Railroad in competition. Such rates and arrangements were 
made by the Pennsylvania Railroad that it was publicly pro- 
claimed in the public print in Oil City, Titusville and other 
places that Cleveland was to be wiped out as a refining centre 
as with a sponge." General Devereux goes on to say that all 
the refiners of the town, without exception, came to him in 
alarm, and expressed their fears that they would have either 
to abandon their business there or move to Titusville or other 
points in the Oil Regions; that the only exception to this 
decision was that offered by Rockefeller, Andrews and Flagler, 
who, on his assurance that the Lake Shore Railroad could and 
would handle oil as cheaply as the Pennsylvania Company, 
proposed to stand their ground at Cleveland and fight it out 
on that line. And so General Devereux gave the Standard the 
rebate on the rate which Amasa Stone had made with all the 
refiners. Why he should not have quieted the fears of the 
twenty-four or twenty-five other refiners by lowering their 
rate, too, does not appear in the affidavit. At all events the 
rebate had come, and, as we have seen, it soon was suspected 
and others went after it, and in some cases got it. But the 

[48] 



THE RISE OF THE STANDARD OIL COMPANY 

rebate seems to have been granted generally only on oil 
brought from the Oil Regions. Mr. Alexander claims he was 
never able to get his rate lowered on his Eastern shipments. 
The railroad took the position with him that if he could ship 
as much oil as the Standard he could have as low a rate, but 
not otherwise. Now in 1870 the Standard Oil Company had a 
daily capacity of about 1,500 barrels of crude. The refinery 
was the largest in the tow r n, though it had some close competi- 
tors. Nevertheless on the strength of its large capacity it re- 
ceived the special favour. It was a plausible way to get around 
the theory generally held then, as now, though not so definitely 
crystallised into law, that the railroad being a common car- 
rier had no right to discriminate between its patrons. It 
remained to be seen whether the practice would be accepted 
by Mr. Rockefeller's competitors without a contest, or, if 
contested, would be supported by the law. 

What the Standard's rebate on Eastern shipments was in 
1870 it is impossible to say. Mr. Alexander says he was never 
able to get a rate lower than $1.33 a barrel by rail, and that 
it was commonly believed in Cleveland that the Standard had 
a rate of ninety cents. Mr. Flagler, however, the only member 
of the firm who has been examined under oath on that point, 
showed, by presenting the contract of the Standard Oil Com- 
pany with the Lake Shore road in 1870, that the rates varied 
during the year from $1.40 to $1.20 and $1.60, according to 
the season. When Mr. Flagler was asked if there was no 
drawback or rebate on this rate he answered, "None what- 



ever." 



It would seem from the above as if the one man in the 
Cleveland oil trade in 1870 who ought to have been satisfied 
was Mr. Rockefeller. His was the largest firm in the largest 
refining centre of the country; that is, of the 10,000 to 12,000 
daily capacity divided among the twenty-five or twenty-six 
refiners of Cleveland he controlled 1,500 barrels. Not only was 

[49] 



THE HISTORY OF THE STANDARD OIL COMPANY 
Cleveland the largest refining centre in the country, it was 
gaining rapidly, for where in 1868 it shipped 776,356 barrels 
of refined oil, in 1869 it shipped 923>933> in l8 7° i>459>5oo, 
and in 1871 1,640,499.* Not only did Mr. Rockefeller control 
the largest firm in this most prosperous centre of a prosperous 
business, he controlled one of amazing efficiency. The com- 
bination, in 1870, of the various companies with which he 
was connected had brought together a group of remarkable 
men. Samuel Andrews, by all accounts, was the ablest mechan- 
ical superintendent in Cleveland. William Rockefeller, the 
brother of John D. Rockefeller, was not only an energetic 
and intelligent business man, he was a man whom people 
liked. He was open-hearted, jolly, a good story-teller, a man 
who knew and liked a good horse — not too pious, as some 
of John's business associates thought him, not a man to 
suspect or fear, as many a man did John. Old oil men will 
tell you on the creek to-day how much they liked him in 
the days when he used to come to Oil City buying oil for 
the Cleveland firm. The personal quality of William Rocke- 
feller was, and always has been, a strong asset of the Stand- 
ard Oil Company. Probably the strongest man in the firm 
after John D. Rockefeller was Henry M. Flagler. He was, 
like the others, a young man, and one who, like the head 
of the firm, had the passion for money, and in a hard self- 
supporting experience, begun when but a boy, had learned, 
as well as his chief, some of the principles of making it. He 
was untiring in his efforts to increase the business, quick to 
see an advantage, as quick to take it. He had no scruples to 
make him hesitate over the ethical quality of a contract which 
was advantageous. Success, that is, making money, was its own 
justification. He was not a secretive man, like John D. Rocke- 
feller, not a dreamer, but he could keep his mouth shut when 
necessary and he knew the worth of a financial dream when 

* Report for 1 871 of the Cleveland Board of Trade. 

[50] 



THE RISE OF THE STANDARD OIL COMPANY 

it was laid before him. It must have been evident to every 
business man who came in contact with the young Standard 
Oil Company that it would go far. The firm itself must have 
known it would go far. Indeed nothing could have stopped 
the Standard Oil Company in 1870 — the oil business being 
what it was — but an entire change in the nature of the members 
of the firm, and they were not the kind of material which 
changes. 

With such a set of associates, with his organisation com- 
plete from his buyers on the creek to his exporting agent in 
New York, with the transportation advantages which none 
of his competitors had had the daring or the persuasive power 
to get, certainly Mr. Rockefeller should have been satisfied 
in 1870. But Mr. Rockefeller was far from satisfied. He was 
a brooding, cautious, secretive man, seeing all the possible 
dangers as well as all the possible opportunities in things, and 
he studied, as a player at chess, all the possible combinations 
which might imperil his supremacy. These twenty-five Cleve- 
land rivals of his — how could he at once and forever put them 
out of the game? He and his partners had somehow conceived 
a great idea — the advantages of combination. What might 
they not do if they could buy out and absorb the big refin- 
eries now competing with them in Cleveland? The possi- 
bilities of the idea grew as they discussed it. Finally they 
began tentatively to sound some of their rivals. But there were 
other rivals than these at home. There were the creek refiners! 
They were there at the mouth of the wells. What might not 
this geographical advantage do in time? Refining was going 
on there on an increasing scale; the capacity of the Oil 
Regions had indeed risen to nearly 10,000 barrels a day — 
equal to that of New York, exceeding that of Pittsburg by 
nearly 4,000 barrels, and almost equalling that of Cleveland. 
The men of the oil country loudly declared that they meant to 
refine for the world. They boasted of an oil kingdom which 

[5i] 



v' 



THE HISTORY OF THE STANDARD OIL COMPANY 

eventually should handle the entire business and compel 
Cleveland and Pittsburg either to abandon their works or 
bring them to the oil country. In this boastful ambition they 
were encouraged particularly by the Pennsylvania Railroad, 
which naturally handled the largest percentage of the oil. 
How long could the Standard Oil Company stand against 
this competition? 

There was another interest as deeply concerned as Mr. 
Rockefeller in preserving Cleveland's supremacy as a refin- 
ing centre, and this was the Lake Shore and New York Cen- 
tral Railroads. Let the bulk of refining be done in the Oil 
Regions and these roads were in danger of losing a profitable 
branch of business. This situation in regard to the oil traffic 
was really more serious now than in 1868 when General! 
Devereux had first given the Standard a rebate. Then it was 
that the Pennsylvania, through its lusty ally the Empire 
Transportation Company, was making the chief fight to 
secure a "patent right on oil transportation." The Erie was 
now becoming as aggressive a competitor. Gould and Fisk 
had gone into the fight with the vigour and the utter unscrupu- 
lousness which characterised all their dealings. They were 
allying themselves with the Pennsylvania Transportation 
Company, the only large rival pipe-line system which the 
Empire had. They were putting up a refinery near Jersey City 
and they were taking advantage shrewdly of all the specula- 
tivc features of the new business. 

As competition grew between the roads, they grew mon 
reckless in granting rebates, the refiners more insistent ir 
demanding them. By 1871 things had come to such a pass ir 
the business that every refiner suspected his neighbour to b< ] 
getting better rates than he. The result was that the freigh 
agents were constantly beset for rebates, and that the larg< 
shippers were generally getting them on the ground of th< 
quantity of oil they controlled. Indeed it was evident that th 

[52] 




W. G. WARDEN 
Secretary of the South Improvement Company. 




PETER H. WATSON 
President of the South Improvement Company. 




• 



CHARLES LOCKHART 

A member of the South Improvement Company, 
and later of the Standard Oil Company. At his 
death in 1904 the oldest living oil operator. 







Active partner of John D. Rockefeller in the oil 
business since 1867. Officer of the Standard Oil 
Company since its organization in 1870. 






THE RISE OF THE STANDARD OIL COMPANY 

rebate being admitted, the only way in which it could be ad- 
justed with a show of fairness was to grade it according to the 
size of the shipment. 

Under these conditions of competition it was certain that 
the New York Central system must work if it was to keep 
its great oil freight, and the general freight agent of the 
Lake Shore road began to give the question special attention. 
This man was Peter H. Watson. Mr. Watson was an able 
patent lawyer who served under the strenuous Stanton as 
an Assistant-Secretary of War, and served well. After the war 
he had been made general freight agent of the Lake Shore 
and Michigan Southern Railroad, and later president of the 
branch of that road which ran into the Oil Regions. He had 
oil interests principally at Franklin, Pennsylvania, and was 
well known to all oil men. He was a business intimate of Mr. 
Rockefeller and a warm friend of Horace F. Clark, the son-in- 
law of W. H. Vanderbilt, at that time president of the Lake 
Shore and Michigan Southern Railroad. As the Standard Oil 
Company was the largest shipper in Cleveland and had 
already received the special favour from the Lake Shore which 
General Devereux describes, it was natural that Mr. Watson 
should consult frequently with Mr. Rockefeller on the ques- 
tion of holding and increasing his oil freight. It was equally 
natural, too, that Mr. Rockefeller should use his influence with 
Mr. Watson to strengthen the theory so important to his rapid 
growth — the theory that the biggest shipper should have the 
best rate. 

Two other towns shared Cleveland's fear of the rise of the 
Oil Regions as a refining centre, and they were Pittsburg and 
Philadelphia, and Mr. Rockefeller and Mr. Watson found 
in certain refiners of these places a strong sympathy with any 
plan which looked to holding the region in check. But while 
the menace in their geographical positions was the first ground 
of sympathy between these gentlemen, something more than 

[53] 



THE HISTORY OF THE STANDARD OIL COMPANY 

local troubles occupied them. This was the condition of the 
refining business as a whole. It was unsatisfactory in many 
particulars. First, it was overdone. The great profits on 
refined oil and the growing demand for it had naturally caused 
a great number to rush into its manufacture. There was at 
this time a refining capacity of three barrels to every one 
produced. To be sure, few if any of these plants expected to 
run the year around. Then, as to-day, there were nearly always 
some stills in even the most prosperous works shut down. But 
after making a fair allowance for this fact there was still a 
much larger amount of refining actually done than the market 
demanded. The result was that the price of refined oil was 
steadily falling. Where Mr. Rockefeller had received on an 
average 58% cents a gallon for the oil he exported in 1865, 
the year he went into business, in 1870 he received but 26^ 
cents. In 1865 ne had a margin of forty- three cents, out of 
which to pay for transportation, manufacturing, barrelling 
and marketing and to make his profits. In 1870 he had but 
iy% cents with which to do all this. To be sure his expenses 
had fallen enormously between 1865 and 1870, but so had his 
profits. The multiplication of refiners with the intense com- 
petition threatened to cut them down still lower. Naturally 
Mr. Rockefeller and his friends looked with dismay on this 
lowering of profits through gaining competition. 

Another anxiety of the American refiners was the condi- 
tion of the export trade. Oil had risen to fourth place in the 
exports of the United States in the twelve years since its dis- 
covery, and every year larger quantities were consumed 
abroad, but it was crude oil, not refined, which the foreigners 
were beginning to demand ; that is, they had found they could 
import crude, refine it at home, and sell it cheaper than they 
could buy American refined. France, to encourage her home 
refineries, had even put a tax on American refined. 

In the fall of 1871, while Mr. RocKefeller and his friends 

[54] 



THE RISE OF THE STANDARD OIL COMPANY 

were occupied with all these questions, certain Pennsylvania 
refiners, it is not too certain who, brought to them a remark- 
able scheme, the gist of which was to bring together secretly 
a large enough body of refiners and shippers to persuade all 
the railroads handling oil to give to the company formed 
special rebates on its oil, and drawbacks on that of other 
people. If they could get such rates it was evident that those 
outside of their combination could not compete with them 
long and that they would become eventually the only refiners. 
They could then limit their output to actual demand, and so 
keep up prices. This done, they could easily persuade the 
railroads to transport no crude for exportation, so that the 
foreigners would be forced to buy American refined. They 
believed that the price of oil thus exported could easily be 
advanced fifty per cent. The control of the refining interests 
would also enable them to fix their own price on crude. As 
they would be the only buyers and sellers, the speculative 
character of the business would be done away with. In short, 
the scheme they worked out put the entire oil business in 
their hands. It looked as simple to put into operation as it was 
dazzling in its results. Mr. Flagler has sworn that neither 
he nor Mr. Rockefeller believed in this scheme.* But when 
they found that their friend Peter H. Watson, and various 
Philadelphia and Pittsburg parties who felt as they did about 
the oil business, believed in it, they went in and began at 
once to work up a company — secretly. It was evident that 
a scheme which aimed at concentrating in the hands of one 
company the business now operated by scores, and which 
proposed to effect this consolidation through a practice of the 
dlroads which was contrary to the spirit of their charters, 
[though freely indulged in, must be worked with fine dis- 
*etion if it ever were to be effective. 

See Appendix, Number 4. Testimony of Henry M. Flagler on the South Im- 
>vement Company. 

[55] 



THE HISTORY OF THE STANDARD OIL COMPANY 
The first thing was to get a charter— quietly. At a meeting 
held in Philadelphia late in the fall of 1871 a friend of one 
of the gentlemen interested mentioned to him that a certain 
estate then in liquidation had a charter for sale which gave 
its owners the right to carry on any kind of business in any 
country and in any way; that it could be bought for what it 
would cost to get a charter under the general laws of the 
state, and that it would be a favour to the heirs to buy it. The 
opportunity was promptly taken. The name of the charter 
bought was the "South (often written Southern) Improve- 
ment Company." For a beginning it was as good a name as 
another, since it said nothing. 

With this charter in hand Mr. Rockefeller and Mr. Watson 
and their associates began to seek converts. In order that their 
great scheme might not be injured by premature public dis- 
cussion they asked of each person whom they approached a 
pledge of secrecy. Two forms of the pledges required before 
anything was revealed were published later. The first of these, 
which appeared in the New York Tribune, read as follows : 

I, A. B., do faithfully promise upon my honour and faith as a gentleman that I will 
keep secret all transactions which I may have with the corporation known as the 
South Improvement Company; that, should I fail to complete any bargains with the 
said company, all the preliminary conversations shall be kept strictly private; and, 
finally, that I will not disclose the price for which I dispose of my product, or any 
other facts which may in any way bring to light the internal workings or organisation 
of the company. All this I do freely promise. 

Signed 

Witnessed by 

A second, published in a history of the "Southern Improve- 
ment Company," ran: 

The undersigned pledge their solemn words of honour that they will not communicate 
to any one without permission of Z (name of director of Southern Improvement Com- 
pany) any information that he may convey to them, or any of them, in relation to the 
Southern Improvement Company. 



Witness 

[56] 



THE RISE OF THE STANDARD OIL COMPANY 

That the promoters met with encouragement is evident from 
the fact that, when the corporators came together on January 
2, 1872, in Philadelphia, for the first time under their char- 
ter, and transferred the company to the stockholders, they 
claimed to represent in one way or another a large part of 
the refining interest of the country. At this meeting 1,100 
shares of the stock of the company, which was divided into 
2,000 $100 shares, were subscribed for, and twenty per cent, 
of their value was paid in. Just who took stock at this meet- 
ing the writer has not been able to discover. At the same time 
a discussion came up as to what refiners were to be allowed 
to go into the new company. Each of the men represented had 
friends whom he wanted taken care of, and after considerable 
discussion it was decided to take in every refinery they could 
get hold of. This decision was largely due to the railroad men. 
Mr. Watson had seen them as soon as the plans for the com- 
pany were formed, and they had all agreed that if they gave 
the rebates and drawbacks all refineries then existing must 
be taken in upon the same level. That is, while the incorpora- 
tors had intended to kill off all but themselves and their 
friends, the railroads refused.tQ.go into a__&cjiejmte which was 
going to _put-anybody_ out- of- business — the plan if they went 
into it must cover the refining trade as it stood. It wasenough 
that it could prevent any oneLin__thfL future g o ing into the 
business. 

Very soon after this meeting of January 2 the rest of the 
stock of the South Improvement Company was taken. The 
complete list of stockholders, with their holdings, was as 
follows : 

William Frew, Philadelphia 10 shares 

W. P. Logan, Philadelphia 10 " 

John P. Logan, Philadelphia 10 " 

Charles Lockhart, Pittsburg 10 " 

Richard S. Waring, Pittsburg 10 " 

[57] 



THE HISTORY OF THE STANDARD OIL COMPANY 

■ W. G. Warden, Philadelphia 475 snar es 

O. F. Waring, Pittsburg 475 

P. H. Watson, Ashtabula, Ohio ioo 

H. M. Flagler, Cleveland 180 

O. H. Payne, Cleveland 180 

William Rockefeller, Cleveland 180 

J. A. Bostwick, New York 180 

John D. Rockefeller, Cleveland* 180 

2,000 shares 

Mr. Watson was elected president and W. G. Warden 
of Philadelphia secretary of the new association. It will be 
noticed that the largest individual holdings in the company 
were those of W. G. Warden and O. F. Waring, each of whom 
had 475 shares. The company most heavily interested in the 
South Improvement Company was the Standard Oil of 
Cleveland, J. D. Rockefeller, William Rockefeller and 
H. M. Flagler, all stockholders of that company, each having 
180 shares — 540 in the company. O. H. Payne and J. A. Bost- 
wick, who soon after became stockholders in the Standard Oil 
Company, also had each 180 shares, giving Mr. Rockefeller 
and his associates 900 shares in all. 

It has frequently been stated that the South Improvement 
Company represented the bulk of the oil-refining interests in 
the country. The incorporators of the company in approach- 
ing the railroads assured them that this was so. As a matter of 
fact, however, the thirteen gentlemen above named, who were 
the only ones ever holding stock in the concern, did not con- 
trol over one-tenth of the refining business of the United 
States in 1872. That business in the aggregate amounted to a 
daily capacity of about 45,000 barrels — from 45,000 to 50,000, 
Mr. Warden put it — and the stockholders of the South Im- 

* List of stockholders given by W. G. Warden, secretary of the South Improvement 
Company, to a Congressional Investigating Committee which examined Mr. Warden 
and Mr. Watson in March and April, 1872. 

[58] 



THE RISE OF THE STANDARD OIL COMPANY 

provement Company owned a combined capacity of not over 
4,600 barrels. In assuring the railroads that they controlled the 
business, they were dealing with their hopes rather than with 
facts. 

The organisation complete, there remained contracts to be 
made with the railroads. Three systems were to be interested: 
The Central, which, by its connection with the Lake Shore 
and Michigan Southern, ran directly into the Oil Regions; 
the Erie, allied with the Atlantic and Great Western, with a 
short line likewise tapping the heart of the region; and the 
Pennsylvania, with the connections known as the Allegheny 
Valley and Oil Creek Railroad. The persons to be won over 
were: W. H. Vanderbilt, of the Central; H. F. Clark, presi- 
dent of the Lake Shore and Michigan Southern; Jay Gould, 
of the Erie; General G. B. McClellan, president of the 
Atlantic and Great Western; and Tom Scott, of the Penn- 
sylvania. There seems to have been little difficulty in per- 
suading any of these persons to go into the scheme after they 
had been assured by the leaders that all of the refiners were 
to be taken in. This was a verbal condition, however, not 
found in the contracts they signed. This important fact Mr. 
Warden himself made clear when three months later he was 
on the witness stand before a committee of Congress appointed 
to look into the great scheme. "We had considerable dis- 
cussion with the railroads," Mr. Warden said, "in regard to 
the matter of rebate on their charges for freight; they did 
not want to give us a rebate unless it was with the understand- 
ing that all the refineries should be brought into the arrange- 
ment and placed upon the same level." 

Q. You say you made propositions to railroad companies, which they agreed to 
accept upon the condition that you could include all the refineries ? 

A. No, sir; I did not say that; I said that was the understanding when we discussed 
this matter with them; it was no proposition on our part; they discussed it, not in 
the form of a proposition that the refineries should be all taken in, but it was the 

[59] 



THE HISTORY OF THE STANDARD OIL COMPANY 
intention and resolution of the company from the first that that should be the result; 
we never had any other purpose in the matter. 

Q. In case you could take the refineries all in, the railroads proposed to give you 
a rebate upon their freight charges ? 

A. No, sir; it was not put in that form; we were to put the refineries all in upon the 
same terms; it was the understanding with the railroad companies that we were to have 
a rebate; there was no rebate given in consideration of our putting the companies 
all in, but we told them we would do it; the contract with the railroad companies was 
with us. 

Q. But if you did form a company composed of the proprietors of all these refineries, 
you were to have a rebate upon your freight charges ? 

A. No; we were to have a rebate anyhow, but were to give all the refineries the 
privilege of coming in. 

Q. You were to have the rebate whether they came in or not ? 

A. Yes, sir. 

* * * 

"What effect were these arrangements to have upon those who did not come into 
the combination ... ?" asked the chairman. 

"I do not think we ever took that question up," answered Mr. Warden. 



A second objection to making a contract with the com- 
pany came from Mr. Scott of the Pennsylvania road and Mr. 
Potts of the Empire Transportation Company. The substance 
of this objection was that the plan took no account of the oil 
producer — the man to whom the world owed the business. 
Mr. Scott was strong in his assertion that they could never 
succeed unless they took care of the producers. Mr. Warden 
objected strongly to forming a combination with them. "The 
interests of the producers were in one sense antagonistic to 
ours: one as the seller and the other as the buyer. We held in 
argument that the producers were abundantly able to take 
care of their own branch of the business if they took care of 
the quantity produced." So strongly did Mr. Scott argue, 
however, that finally the members of the South Improvement 
Company yielded, and a draft of an agreement, to be pro- 
posed to the producers, was drawn up in lead-pencil; it was 

[60] 




THOMAS A. SCOTT 

The contract of the South Improvement Com- 
pany with the Pennsylvania Railroad was signed 
by Mr. Scott, then vice-president of the road. 




WILLIAM H. VANDERBILT 

The contract of the South Improvement Com- 
pany with the New York Central was signed by 
Mr. Vanderbilt, then vice-president of the road. 





JAY GOULD 

President of the Erie Railroad in 1872. Signer 
of the contract with the South Improvement Com- 
pany. 



COMMODORE CORNELIUS VANDERBILT 

President of the New York Central Railroad 
when the contract with the South Improvement 
Company was signed. 



(o° 



THE RISE OF THE STANDARD OIL COMPANY 

never presented. It seems to have been used principally to 
quiet Mr. Scott. 

The work of persuasion went on swiftly. By the 18th of 
January the president of the Pennsylvania road, J. Edgar 
Thompson, had put his signature to the contract, and soon 
after Mr. Vanderbilt and Mr. Clark signed for the Central 
system, and Jay Gould and General McClellan for the Erie. 
The contracts to which these gentlemen put their names fixed 
gross rates of freight from all common points, as the leading 
shipping points within the Oil Regions were called, to all 
the great refining and shipping centres — New York, Phila- 
delphia, Baltimore, Pittsburg and Cleveland. For example, 
the open rate on crude to New York was put at $2.56. On 
this price the South Improvement Company was allowed a 
rebate of $1.06 for its shipments; but it got not only this 
rebate, it was given in cash a like amount on each barrel of 
crude shipped by parties outside the combination. 

The open rate from Cleveland to New York was two dollars, 
and fifty cents of this was turned over to the South Improve- 
ment Company, which at the same time received a rebate 
enabling it to ship for $1.50. Again, an independent refiner 
in Cleveland paid eighty cents a barrel to get his crude from 
the Oil Regions to his works, and the railroad sent forty cents 
of this money to the South Improvement Company. At the 
same time it cost the Cleveland refiner in the combination but 
forty cents to get his crude oil. Like drawbacks and rebates 
were given for all points — Pittsburg, Philadelphia, Boston 
and Baltimore. 

An interesting provision in the contracts was that full way- 
bills of all petroleum shipped over the roads should each day 
be sent to the South Improvement Company. This, of course, 

I gave them knowledge of just who was doing business outside 
of their company — of how much business he was doing, and 
with whom he was doing it. Not only were they to have full 
[61] 



THE HISTORY OF THE STANDARD OIL COMPANY 
knowledge of the business of all shippers — they were to have 
access to all books of the railroads. 

The parties to the contracts agreed that if anybody appeared 
in the business offering an equal amount of transportation, 
and having equal facilities for doing business with the South 
Improvement Company, the railroads might give them equal 
advantages in drawbacks and rebates, but to make such a 
miscarriage of the scheme doubly improbable each railroad 
was bound to co-operate as "far as it legally might to main- 
tain the business of the South Improvement Company against 
injury by competition, and lower or raise the gross rates of 
transportation for such times and to such extent as might be 
necessary to overcome the competition. The rebates and draw- 
backs to be varied pari passu with the gross rates." * 

The reason given by the railroads in the contract for grant- 
ing these extraordinary privileges was that the "magnitude 
and extent of the business and operations" purposed to be car- 
ried on by the South Improvement Company would greatly 
promote the interest of the railroads and make it desirable for 
them to encourage their undertaking. The evident advantages 
received by the railroad were a regular amount of freight, — 
the Pennsylvania was to have forty-five per cent, of the East- 
bound shipments, the Erie and Central each 27^ per cent., 
while West-bound freight was to be divided equally between 
them — fixed rates, and freedom from the system of cutting 
which they had all found so harassing and disastrous. That is, 
the South Improvement Company, which was to include the 
entire refining capacity of the company, was to act as the 
evener of the oil business. t 

It was on the second of January, 1872, that the organisation 

* Article Fourth : Contract between the South Improvement Company and the 
Pennsylvania Railroad Company, January 18, 1872. 

t See Appendix, Number 5. Contract between the South Improvement Company 
and the Pennsylvania Railroad Company. Dated January 18, 1872. 

[62] 



THE RISE OF THE STANDARD OIL COMPANY 

of the South Improvement Company was completed. The 
day before the Standard Oil Company of Cleveland in- 
creased its capital from $1,000,000 to $2,500,000, "all the 
stockholders of the company being present and voting there- 
for." * These stockholders were greater by five than in 1870, 
the names of O. B. Jennings, Benjamin Brewster, Truman P. 
Handy, Amasa Stone, and Stillman Witt having been added. 
The last three were officers and stockholders in one or more 
of the railroads centring in Cleveland. Three weeks after 
this increase of capital Mr. Rockefeller had the charter and 
contracts of the South Improvement Company in hand, and 
was ready to see what they would do in helping him carry out 
his idea of wholesale combination in Cleveland. There were 
at that time some twenty-six refineries in the town — some of 
them very large plants. All of them were feeling more or less 
the discouraging effects of the last three or four years of rail- 
road discriminations in favour of the Standard Oil Company. 
To the owners of these refineries Mr. Rockefeller now went 
one by one, and explained the South Improvement Company. 
"You see," he told them, "this scheme is bound to work. It 
means an absolute control by us of the oil business. There is 
no chance for anyone outside. But we are going to give every- 
body a chance to come in. You are to turn over your refinery 
to my appraisers, and I will give you Standard Oil Company 
stock or cash, as you prefer, for the value we put upon it. I 
advise you to take the stock. It will be for your good." Cer- 
tain refiners objected. They did not want to sell. They did 
want to keep and manage their business. Mr. Rockefeller was 
regretful, but firm. It was useless to resist, he told the hesitat- 
ng; they would certainly be crushed if they did not accept 
is offer, and he pointed out in detail, and with gentleness, 
ow beneficent the scheme really was — preventing the creek 

* See Appendix, Number 6. Standard Oil Company's application for increase of 

Ipital stock to $2,500,000 in 1872. 
[63] 



I 



THE HISTORY OF THE STANDARD OIL COMPANY 

refiners from destroying Cleveland, ending competition, 
keeping up the price of refined oil, and eliminating specu- 
lation. Really a wonderful contrivance for the good of the 
oil business. 

That such was Mr. Rockefeller's argument is proved by 
abundant testimony from different individuals who suc- 
cumbed to the pressure. Mr. Rockefeller's own brother, Frank 
Rockefeller, gave most definite evidence on this point in 1876 
when he and others were trying to interest Congress in a 
law regulating interstate commerce. 

"We had in Cleveland at one time about thirty establish- 
ments, but the South Improvement Company was formed, 
and the Cleveland companies were told that if they didn't 
sell their property to them it would be valueless, that there 
was a combination of railroad and oil men, that they would 
buy all they could, and that all they didn't buy would be 
totally valueless, because they would be unable to compete 
with the South Improvement Company, and the result was 
that out of thirty there were only four or five that didn't 
sell." 

"From whom was that information received?" asked the 
examiner. 

"From the officers of the Standard Oil Company. They 
made no bones about it at all. They said: 'If you don't sell 
your property to us it will be valueless, because we have got 
advantages with the railroads.' " 

"Have you heard those gentlemen say what you have 
stated?" Frank Rockefeller was asked. 

"I have heard Rockefeller and Flagler say so," he 
answered. 

W. H. Doane, whose evidence on the first rebates granted 
to the Cleveland trade we have already quoted, told the Con- 
gressional committee which a few months after Mr. Rocke- 
feller's great coup tried to find out what had happened in 

[64] 



THE RISE OF THE STANDARD OIL COMPANY 

Cleveland: "The refineries are all bought up by the Standard 
Oil works; they were forced to sell; the railroads had put 
up the rates and it scared them. Men came to me and told me 
they could not continue their business; they became fright- 
ened and disposed of their property." Mr. Doane's own 
business, that of a crude oil shipper, was entirely ruined, all 
of his customers but one having sold. 

To this same committee Mr. Alexander, of Alexander, Sco- 
field and Company, gave his reason for selling: 

"There was a pressure brought to bear upon my mind, and upon almost all citizens 
of Cleveland engaged in the oil business, to the effect that unless we went into the 
South Improvement Company we were virtually killed as refiners; that if we did not 
sell out we should be crushed out. My partner, Mr. Hewitt, had some negotiations 
with parties connected with the South Improvement Company, and they gave us 
to understand, at least my partner so represented to me, that we should be crushed 
out if we did not go into that arrangement. He wanted me to see the parties myself; 
but I said to him that I would not have any dealings with certain parties who were 
in that company for any purpose, and I never did. We sold at a sacrifice, and we 
were obliged to. There was only one buyer in the market, and we had to sell on their 
terms or be crushed out, as it was represented to us. It was stated that they had a con- 
tract with railroads by which they could run us into the ground if they pleased. After 
learning what the arrangements were I felt as if, rather than fight such a monopoly, 
I would withdraw from the business, even at a sacrifice. I think we received about 
forty or forty-five cents on the dollar on the valuation which we placed upon our 
refinery. We had spent over #50,000 on our works during the past year, which was 
nearly all that we received. We had paid out #60,000 or #70,000 before that; we con- 
sidered our works at their cash value worth seventy-five per cent, of their cost. Ac- 
cording to our valuation our establishment was worth #150,000, and we sold it for 
about #65,000, which was about forty or forty-five per cent, of its value. We sold 
to one of the members, as I suppose, of the South Improvement Company, Mr. Rocke- 
feller; he is a director in that company; it was sold in name to the Standard Oil Com- 
pany, of Cleveland, but the arrangements were, as I understand it, that they were 
to put it into the South Improvement Company. I am stating what my partner told me; 
he did all the business; his statement was that all these works were to be merged into 
the South Improvement Company. I never talked with any members of the South 
Improvement Company myself on the subject; I declined to have anything to do 
with them." 

[65] 



THE HISTORY OF THE STANDARD OIL COMPANY 

Mr. Hewitt, the partner who Mr. Alexander says carrie* 
on the negotiations for the sale of the business, appeared 
before an investigating committee of the New York Stat< 
Senate in 1879 and gave his recollections of what happened. 
According to his story the entire oil trade in Cleveland became 
paralysed when it became known that the South Improve- 
ment Company had "grappled the entire transportation of 
oil from the West to the seaboard." Mr. Hewitt went to see 
the freight agents of the various roads; he called on W. H. 
Vanderbilt, but from no one did he get any encouragement. 
Then he saw Peter H. Watson of the Lake Shore Railroad, 
the president of the company which was frightening the trade. 
"Watson was non-committal," said Mr. Hewitt. "I got no 
satisfaction except, 'You better sell — you better get clear — 
better sell out — no help for it' " After a little time Mr. Hewitt 
concluded with his partners that there was indeed "no help 
for it," and he went to see Mr. Rockefeller, who offered him 
fifty cents on the dollar on the constructive account. The offer 
was accepted. There was nothing else to do, the firm seems to 
have concluded. When they came to transfer the property Mr. 
Rockefeller urged Mr. Hewitt to take stock in the new con- 
cern. "He told me," said Mr. Hewitt, "that it would be suffi- 
cient to take care of my family for all time, what I represented 
there, and asking for a reason, he made this expression, I 
remember: 'I have ways of making money that you know 
nothing of/ " 

A few of the refiners contested before surrendering. Among 
these was Robert Hanna, an uncle of Mark Hanna, of the 
firm of Hanna, Baslington and Company. Mr. Hanna had been 
refining since July, 1869. According to his own sworn state- 
ment he had made money, fully sixty per cent, on his invest- 
ment the first year, and after that thirty per cent. Some 
time in February, 1872, the Standard Oil Company asked an 
interview with him and his associates. They wanted to buy 

[661 



THE RISE OF THE STANDARD OIL COMPANY 

his works, they said. "But we don't want to sell," objected Mr. 
Hanna. "You can never make any more money, in my judg- 
ment," said Mr. Rockefeller. "You can't compete with the 
Standard. We have all the large refineries now. If you refuse 
to sell, it will end in your being crushed." Hanna and Basling- 
ton were not satisfied. They went to see Mr. Watson, president 
di the South Improvement Company and an officer of the 
Lake Shore, and General Devereux, manager of the Lake 
Shore road. They were told that the Standard had special 
rates ; that it was useless to try to compete with them. General 
Devereux explained to the gentlemen that the privileges 
granted the Standard were the legitimate and necessary 
idvantage of the larger shipper over the smaller, and that if 
rlanna, Baslington and Company could give the road as large 
i quantity of oil as the Standard did, with the same regularity, 
hey could have the same rate. General Devereux says they 
'recognised the propriety" of his excuse. They certainly rec- 
)gnised its authority. They say that they were satisfied they 
:ould no longer get rates to and from Cleveland which would 
nable them to live, and "reluctantly" sold out. It must have 
>een reluctantly, for they had paid $75,000 for their works, 
nd had made thirty per cent, a year on an average on their 
nvestment, and the Standard appraiser allowed them $45,000. 
Truly and really less than one-half of what they were abso- 
utely worth, with a fair and honest competition in the lines 
f transportation," said Mr. Hanna, eight years later, in an 
ffidavit* 
Under the combined threat and persuasion of the Standard, 
rmed with the South Improvement Company scheme, almost 
ie entire independent oil interest of .Cleveland collapsed 
1 three months' time. Of the twenty-six refineries, at least 
venty-one sold out. From a capacity of probably not over 
,500 barrels of crude a day, the Standard Oil Company rose 

* See Appendix, Number 7. Affidavits of George O. Baslington. 

[ 67 ] 



THE HISTORY OF THE STANDARD OIL COMPANY 

in three months' time to one of 10,000 barrels. By this 
manoeuvre it became master of over one-fifth of the refining 
capacity of the United States.* Its next individual competitor 
was Sone and Fleming, of New York, whose capacity was 1,700 
barrels. The Standard had a greater capacity than the entire 
Oil Creek Regions, greater than the combined New York 
refiners. The transaction by which it acquired this power was 
so stealthy that not even the best informed newspaper men 
of Cleveland knew what went on. It had all been accom- 
plished in accordance with one of Mr. Rockefeller's chief 
business principles — "Silence is golden." 

While Mr. Rockefeller was working out the "good of the 
oil business" in Cleveland, his associates were busy at other 
points. Charles Lockhart in Pittsburg and W. G. Warden in 
Philadelphia were particularly active, though neither of them 
accomplished any such sweeping benefaction as Mr. Rocke- 
feller had. It was now evident what the stockholders of the 
South Improvement Company meant when they assured the 
railroads that all the refiners were to go into the scheme, that, 
as Mr. Warden said, they "never had any other purpose in thei 
matter!" A little more time and the great scheme would be 
an accomplished fact. And then there fell in its path two of 

*In 1872 the refining capacity of the United States was as follows, according t( 
Henry's " Early and Later History of Petroleum ' ' : 

Barrels 

Oil Regions 9>23i 

New York 9>79° 

Cleveland 12^732 

Pittsburg 6,090 

Philadelphia 2,061 

Baltimore 1 ,098 

Boston 3»5°° 

Erie 1,168 

Other Points 901 

Total 46,571 

[68] 



THE RISE OF THE STANDARD OIL COMPANY 

those never-to-be-foreseen human elements which so often 
block great manoeuvres. The first was born of a man's anger. 
The man had learned of the scheme. He wanted to go into 
it, but the directors were suspicious of him. He had been 
concerned in speculative enterprises and in dealings with the 
Erie road which had injured these directors in other ways. 
They didn't want him to have any of the advantages of their 
great enterprise. When convinced that he could not share in 
the deal, he took his revenge by telling people in the Oil Re- 
gions what was going on. At first the Oil Regions refused to 
believe, but in a few days another slip born of human weakness 
came in to prove the rumour true. The schedule of rates agreed 
upon by the South Improvement Company and the railroads 
had been sent to the freight agent of the Lake Shore Rail- 
road, but no order had been given to put them in force. The 
freight agent had a son on his death-bed. Distracted by his 
sorrow, he left his office in charge of subordinates, but neg- 
lected to tell them that the new schedules on his desk were 
a secret compact, whose effectiveness depended upon their 
being held until all was complete. On February 26, the subor- 
dinates, ignorant of the nature of the rates, put them into 
effect. The independent oil men heard with amazement 
that freight rates had been put up nearly 100 per cent. 
They needed no other proof of the truth of the rumours of 
conspiracy which were circulating. It now remained to be 
seen whether the Oil Regions would submit to the South 
Improvement Company as Cleveland had to the Standard Oil 
Company. ^tuOfadu (> 

a*\! — - 






5 









3 * 1 ( 



UauIo. 



fy ^M/u ? 






[69] 






CHAPTER THREE 
THE OIL WAR OF 1872 

RISING IN THE OIL REGIONS AGAINST THE SOUTH IMPROVEMENT COMPANY 
—PETROLEUM PRODUCERS' UNION ORGANISED— OIL BLOCKADE AGAINST 
MEMBERS OF SOUTH IMPROVEMENT COMPANY AND AGAINST RAILROADS 
IMPLICATED— CONGRESSIONAL INVESTIGATION OF 1872 AND THE DOCU- 
MENTS IT REVEALED— PUBLIC DISCUSSION AND GENERAL CONDEMNATION 
OF THE SOUTH IMPROVEMENT COMPANY— RAILROAD OFFICIALS CONFER 
WITH COMMITTEE FROM PETROLEUM PRODUCERS' UNION— WATSON 
AND ROCKEFELLER REFUSED ADMITTANCE TO CONFERENCE— RAILROADS 
REVOKE CONTRACTS WITH SOUTH IMPROVEMENT COMPANY AND MAKE 
CONTRACT WITH PETROLEUM PRODUCERS' UNION— BLOCKADE AGAINST 
SOUTH IMPROVEMENT COMPANY LIFTED— OIL WAR OFFICIALLY ENDED— 
ROCKEFELLER CONTINUES TO GET REBATES— HIS GREAT PLAN STILL A 
LIVING PURPOSE. 

IT was not until after the middle of February, 1872, that the 
people of the Oil Regions heard anything of the plan which 
was being worked out for their "good." Then an uneasy 
rumour began running up and down the creek. Freight rates 
were going up. Now an advance in a man's freight bill may 
ruin his business ; more, it may mean the ruin of a region. Ru- 
mour said that the new rate meant just this ; that is, that it more 
than covered the margin of profit in any branch of the oil 
business. The railroads were not going to apply the pro 
posed tariffs to everybody. They had agreed to give to i 
company unheard of until now— the South Improvemen 
Company— a special rate considerably lower than the nev . 
open rate. It was only a rumour and many people discredite( 
it. Why should the railroads ruin the Oil Regions to buil 
up a company of outsiders? 

But facts began to be reported. Mr. Doane, the Clevelan 

[70] 



■! 



THE OIL WAR OF 1872 

shipper already quoted, told how suddenly on the 22d of Feb- 
ruary, without notice, his rate from the Oil Regions to Cleve- 
land was put up from thirty-five cents a barrel to sixty-five 
cents, an advance of twenty-four dollars on a carload.* Mr. 
Josiah Lombard of the New York refining firm of Ayres, 
Lombard and Company was buying oil for his company at 
Oil City. Their refinery was running about 12,000 barrels a 
month. On the 19th of February the rate from Oil City to 
Buffalo, which had been forty cents a barrel, was raised to 
sixty-five cents, and a few days later the rate from Warren 
to New York was raised from eighty-seven cents to $2.14. Mr. 
Lombard was not aware of this change until his house in New 
York reported to him that the bills for freight were so heavy 
that they could not afford to ship and wanted to know what 
was the matter.f 

On the morning of February 26, 1872, the oil men read in 
their morning papers that the rise which had been threatening 
had come; moreover, that all members of the South Improve- 
ment Company were exempt from the advance. At the news 
all oildom rushed into the streets. Nobody waited to find out 
his neighbour's opinion. On every lip there was but one word, 
and that was "conspiracy." In the vernacular of the region, 
it was evident that "a torpedo was filling for that scheme." 

In twenty-four hours after the announcement of the increase 
in freight rates a mass-meeting of 3,000 excited, gesticulat- 
ing oil men was gathered in the opera house at Titusville. 
Producers, brokers, refiners, drillers, pumpers were in the 
crowd. Their temper was shown by the mottoes on the ban- 
ners which they carried: "Down with the conspirators" — 
"No compromise" — "Don't give up the ship!" Three days 

*A History of the Rise and Fall of the South Improvement Company. Testimony 
of W. H. Doane, page 45. 

fA History of the Rise and Fall of the South Improvement Company. Testimony 
of Josiah Lombard, page 57. 

[71] 



THE HISTORY OF THE STANDARD OIL COMPANY 

later as large a meeting was held at Oil City, its temper more 
warlike if possible ; and so it went. They organised a Petro- 
leum Producers 7 Union,* pledged themselves to reduce their 
production by starting no new wells for sixty days and by 
shutting down on Sundays, to sell no oil to any person known 
to be in the South Improvement Company, but to support the 
creek refiners and those elsewhere who had refused to go into 
the combination, to boycott the offending railroads, and to 
build lines which they would own and control themselves. 
They sent a committee to the Legislature asking that the char- 
ter of the South Improvement Company be repealed, and 
another to Congress demanding an investigation of the whole 
business on the ground that it was an interference with trade. 
They ordered that a history of the conspiracy, giving the 
names of the conspirators and the designs of the company, 
should be prepared, and 30,00x5 copies sent to "judges of all 
courts, senators of the United States, members of Congress and 
of State Legislatures, and to all railroad men and prominent 
business men of the country, to the end that enemies of the 
freedom of trade may be known and shunned by all honest 



men." 



They prepared a petition ninety-three feet long praying for 
a free pipe-line bill, something which they had long wanted, 
but which, so far, the Pennsylvania Railroad had prevented 
their getting, and sent it by a committee to the Legislature; 
and for days they kept 1,000 men ready to march on 
Harrisburg at a moment's notice if the Legislature showed 
signs of refusing their demands. In short, for weeks the whole 
body of oil men abandoned regular business and surged from 
town to town intent on destroying the "Monster," the "Forty 
Thieves," the "Great Anaconda," as they called the myste- 
rious South Improvement Company. Curiously enough, it 

*See Appendix, Number 8. Organisation of the Petroleum Producers' Union of 
1872. 

[72] 



THE OIL WAR OF 1872 

was chiefly against the combination which had secured the 
discrimination from the railroads — not the railroads which 
had granted it — that their fury was directed. They expected 
nothing but robbery from the railroads, they said. They were 
used to that; but they would not endure it from men in their 
own business. 

When they began the fight the mass of the oil men knew 
nothing more of the South Improvement Company than its 
name and the fact that it had secured from the railroads 
advantages in rates which were bound to ruin all independent 
refiners of oil and to put all producers at its mercy. Their 
tempers were not improved by the discovery that it was a 
secret organisation, and that it had been at work under their 
very eyes for some weeks without their knowing it. At the first 
public meeting this fact came out, leading refiners of the 
region relating their experience with the "Anaconda." 
According to one of these gentlemen, J. D. Archbold — 
the same who afterward became vice-president of the Stand- 
ard Oil Company, which office he now holds — he and his 
partners had heard of the scheme some months before. 
Alarmed by the rumour, a committee of independent refiners 
had attempted to investigate, but could learn nothing until 
they had given a promise not to reveal what was told them. 
When convinced that a company had been formed actually 
strong enough to force or persuade the railroads to give it 
special rates and refuse them to all persons outside, Mr. 
Archbold said that he and his colleagues had gone to the rail- 
way kings to remonstrate, but all to no effect. The South 
Improvement Company by some means had convinced the rail- 
roads that they owned the Oil Regions, producers and re- 
finers both, and that hereafter no oil of any account would 
be shipped except as they shipped it. Mr. Archbold and 
his partners had been asked to join the company, but had 

Bid, declaring that the whole business was, .iniquitous, 
[73] 



THE HISTORY OF THE STANDARD OIL COMPANY 

that they would fight it to the end, and that in their fight 
they would have the backing of the oil men as a whole. 
They excused their silence up to this time by citing the 
pledge * exacted from them before they were informed of 
the extent and nature of the South Improvement Company. 

Naturally the burning question throughout the Oil Regions, 
convinced as it was of the iniquity of the scheme, was, Who 
are the conspirators? Whether the gentlemen concerned 
regarded themselves in the light of "conspirators" or not, 
they seem from the first to have realised that it would be 
discreet not to be identified publicly with the scheme, and 
to have allowed one name alone to appear in all signed nego- 
tiations. This was the name of the president, Peter H. Wat- 
son. However anxious the members of the South Improve- 
ment Company were that Mr. Watson should combine the 
honours of president with the trials of scapegoat, it was impos- 
sible to keep their names concealed. The Oil City Derrick, 
at that time one of the most vigorous, witty, and daring news- 
papers in the country, began a black list at the head of its 
editorial columns the day after the raise in freight was 
announced, and it kept it there until it was believed com- 
plete. It stood finally as it appears on the opposite page. 

This list was not exact, but it was enough to go on, and 
the oil blockade, to which the Petroleum Producers' Union 
had pledged itself, was now enforced against the firms listed, 
and as far as possible against the railroads. All of these 
refineries had their buyers on the creek, and although sev- 
eral of them were young men generally liked for their per- 
sonal and business qualities, no mercy was shown them. The} ' 
were refused oil by everybody, though they offered from 
seventy-five cents to a dollar more than the market price 
They were ordered at one meeting "to desist from theii 
nefarious business or leave the Oil Region," and when the) 

* See page 56. 

[74] 




JOHN D. ARCHBOLD IN 1872 

Now vice-president of the Standard Oil Company. Mr. Archbold, 
whose home, in 1872, was in Titusville, Pennsylvania, although one of the 
youngest refiners of the Creek, was one of the most active and efficient in 
breaking up the South Improvement Company. 



If 



THE OIL WAR OF 1872 

declined they were invited to resign from the oil exchanges 

Iof which they were members. So strictly, indeed, was the 
blockade enforced that in Cleveland the refineries were 
closed and meetings for the relief of the workmen were held. 



THE BLACK LIST. 



P. H. WATSON, PRE$. S. I. CO. 

Char lea lock hart, 

W. P. Logan, 

R, S. Waring, 

A. W. Best wick, 

W. C. Warden, 

John Rockefeller* 

Amasa SCone. 

These seven are given as the Dlree 
tors of the SouUieru Improvement 
Company. They are refiners or mer 
ouanls of petroleum 

Atlantic & G t. Western Rail way. 

JL. s. &. in. s. Hallway* 

Philadelphia A Eric Railway 

Pennsylvania Central Railway 

New York Central Railway 

Erie Railway. 



TJehold "The Anaconda" in all his hide- 
ous deformity! 

only violence at the opening of the war being at Franklin, 
where a quantity of the oil belonging to Mr. Watson was 
run on the ground. 

The sudden uprising of the Oil Regions against the South 
Improvement Company did not alarm its members at first. 
The excitement would die out, they told one another. All 
that they needed to do was to keep quiet and stay out of the 
oil country. But the excitement did not die out. Indeed, with 
every day it became more intense and more wide-spread. 
When Mr. Watson's tanks were tapped he began to protest 

[75] 



THE HISTORY OF THE STANDARD OIL COMPANY 
in letters to a friend, F. W. Mitchell, a prominent banker 
and oil man of Franklin. The company was misunderstood, 
he complained. "Have a committee of leading producers 
appointed," he wrote, "and we will show that the contracts 
with the railroads are as favourable to the producing as to 
other interests ; that the much-denounced rebate will enhance 
the price of oil at the wells, and that our entire plan in 
operation and effect will promote every legitimate American 
interest in the oil trade." Mr. Mitchell urged Mr. Watson 
to come openly to the Oil Regions and meet the producers 
as a body. A mass-meeting was never a "deliberative body," 
Mr. Watson replied, but if a few of the leading oil men 
would go to Albany or New York, or any place favourable 
to calm investigation and deliberation, and therefore outside 
of the atmosphere of excitement which enveloped the oil 
country, he would see them. These letters were read to the 
producers, and a motion to appoint a committee was made. 
It was received with protests and jeers. Mr. Watson was 
afraid to come to the Oil Regions, they said. The letters were 
not addressed to the association, they were private — an insult 
to the body. "We are lowering our dignity to treat with this 
man Watson," declared one man. "He is free to come to these 
meetings if he wants to." "What is there to negotiate about?" 
asked another. "To open a negotiation is to concede that we 
are wrong. Can we go halves with these middlemen in their 
swindle?" "He has set a trap for us," declared another. "We 
cannot treat with him without guilt," and the motion was 
voted down. 

The stopping of the oil supply finally forced the South 
Improvement Company to recognise the Producers' Union 
officially by asking that a committee of the body be appointed 
to confer with them on a compromise. The producers sent 
back a pertinent answer. They believed the South Improve- 
ment Company meant to monopolise the oil business. If that 

[76] 



THE OIL WAR OF 1872 

was so they could not consider a compromise with it. If tjhey 
were wrong, they would be glad to be enlightened, and they 
asked for information. First: the charter under which the 
South Improvement Company was organised. Second: the 
articles of association. Third: the officers' names. Fourth: 
the contracts with the railroads which signed them. Fifth: the 
general plan of management. Until we know these things, 
the oil men declared, we can no more negotiate with you 
than we could sit down to negotiate with a burglar as to his 
privileges in our house. 

The Producers' Union did not get the information they 
asked from the company at that time, but it was not long 
before they had it, and much more. The committee which 
they had appointed to write a history of the South Improve- 
ment Company reported on March 20, and in April the 
Congressional Committee appointed at the insistence of the 
oil men made its investigation. The former report was pub- 
lished broadcast, and is readily accessible to-day. The Con- 
gressional Investigation was not published officially, and no 
trace of its work can now be found in Washington, but while 
it was going on reports were made in the newspapers of the 
Oil'Regions, and at its close the Producers' Union published 
in Lancaster, Pennsylvania, a pamphlet called "A History of 
the Rise and Fall of the South Improvement Company," which 
contains the full testimony taken by the committee. This pam- 
phlet is rare, the writer never having been able to find a copy 
save in three or four private collections. The most important 
part of it is the testimony of Peter H. Watson, the president, 
and W. G. Warden, the secretary of the South Improvement 
Company. It was in these documents that the oil men found 

iull justification for the war they were carrying on and 
or the losses they had caused themselves and others. Nothi- 
ng, indeed, could have been more damaging to a corpora- 
ion than the publication of the charter of the South Im- 
[77] 



THE HISTORY OF THE STANDARD OIL COMPANY 
provement Company. As its president told the Congressional 
Investigating Committee, when he was under examination, 
"this charter was a sort of clothes-horse to hang a scheme 
upon." As a matter of fact it was a clothes-horse big enough 
to hang the earth upon. It granted powers practically unlim- 
ited* There really was no exaggeration in the summary of 
its powers made and scattered broadcast by the irate oil men 
in their "History of the Rise and Fall of the South Improve- 
ment Company" : * 

The South Improvement Company can own, contract, or operate any work, busi- 
ness, or traffic (save only banking); may hold and transfer any kind of property, real or 
personal; hold and operate on any leased property (oil territory, for instance); make 
any kind of contract; deal in stock, securities, and funds; loan its credit, guarantee 
any one's paper; manipulate any industry; may seize upon the lands of other parties 
for railroading or any other purpose; may absorb the improvements, property or 
franchises of any other company, ad infinitum; may fix the fares, tolls, or freights to 
be charged on lines of transit operated by it, or on any business it gives to any other 
company or line, without limit. 

Its capital stock can be expanded or "watered" at liberty; it can change its name 
and location at pleasure; can go anywhere and do almost anything. It is not a Penn- 
sylvania corporation only; it can, so far as these enactments are valid, or are confirmed 
by other Legislatures, operate in any state or territory; its directors must be only 
citizens of the United States— not necessarily of Pennsylvania. It is responsible to no 
one; its stockholders are only liable to the amount of their stock in it; its directors, 
when wielding all the princely powers of the corporation, are also responsible only 
to the amount of their stock in it; it may control the business of the continent and 
hold and transfer millions of property, and yet be rotten to the core. It is responsible 
to no one; makes no reports of its acts or financial condition; its records and delibera- 
tions are secret; its capital illimitable; its object unknown. It can be here to-day, 
to-morrow away. Its domain is the whole country; its business everything. Now 
it is petroleum it grasps and monopolises; next year it may be iron, coal, cotton, or 
breadstufFs. They are landsmen granted perpetual letters of marque to prey upon all 
commerce everywhere. 

When the course of this charter through the Pennsylvania 
Legislature came to be traced, it was found to be devious 

* See Appendix, Number 9. Charter of the South Improvement Company. 

[78] 



THE OIL WAR OF 1872 

and uncertain. The company had been incorporated in 1871, 
and vested with all the "powers, privileges, duties and obli- 
gations" of an earlier company — incorporated in April, 1870 
— the Pennsylvania Company; both of them were children 
of that interesting body known as the "Tom Scott Legisla- 
ture. " The act incorporating the company was not published 
until after the oil war ; its sponsor was never known, and 
no votes on it are recorded. The origin of the South Improve- 
ment Company has always remained in darkness. It was one 
of several "improvement" companies chartered in Penn- 
sylvania at about the same time, and enjoying the same com- 
mercial carte blanche. 

Bad as the charter was in appearance, the oil men found 
that the contracts which the new company had made with 
the railroads were worse. These contracts advanced the rates 
of freight from the Oil Regions over 100 per cent. — an 
advance which more than covered the margin of profit on 
their business — but it was not the railroad that got the greater 
part of this advance; it was the South Improvement Com- 
pany. Not only did it ship its own oil at fully a dollar a 
barrel cheaper on an average than anybody else could, but 
it received fully a dollar a barrel "rake-off" on every barrel 
its competitors shipped. It was computed and admitted by 
the members of the company who appeared before the inves- 
tigating committee of Congress that this discrimination would 
have turned over to them fully $6,000,000 annually on the 
carrying trade. The railroads expected to receive about one 
and a half millions more than from the existing rates. That 
is, an additional cost of about $1.25 a barrel was added to 
crude oil, and it was computed that this would enable the 
refiners to advance their wholesale price at least four cents 
a gallon. It is hardly to be wondered at that when the oil 
men had before them the full text of these contracts they 
refused absolutely to accept the repeated assertions of the 

[79] 



THE HISTORY OF THE STANDARD OIL COMPANY 

members of the South Improvement Company that their 
scheme was intended only for "the good of the oil business." 
The committee of Congress could not be persuaded to 
believe it either. "Your success meant the destruction of 
every refiner who refused for any reason to join your com- 
pany, or whom you did not care to have in, and it put the 
producers entirely in your power. It would make a monopoly 
such as no set of men are fit to handle," the chairman of the 
committee declared. Of course Mr. Warden, the secretary 
of the company, protested again and again that they meant 
to take in all the refiners, but when he had to admit that the 
contracts with the railroads were not made on this condition, 
his protestations met with little credence. Besides, there was 
the damning fact that no refiners had come in except those 
in Cleveland, and that they with one accord testified that 
they had yielded to force. Not a single factory in either New 
York or the Oil Regions was in the combination. The fact 
that the producers had never been approached in any way 
looked very bad for the company, too. Mr. Watson affirmed 
and reaffirmed before the committee that it was the intention 
of the company to take care of the producers. "It was an 
essential part of this contract that the producers should join 
it," he declared. But no such condition was embodied in the 
contract. It was verbal only, and, besides, it had never been 
submitted to the producers themselves in any form until after 
the trouble in the Oil Regions began. The committee, like 
the oil men, insisted that under the circumstances no such 
verbal understanding was to be trusted.* 

No part of the testimony before the committee made a 
worse impression than that showing that the chief object of 
the combination was to put up the price of refined oil to 

* See Appendix, Number 10. Draft of contract between the South Improvement 
Company and producers of petroleum in the valley of the Allegheny and its tribu- 
taries. Dated January, 1872. 

[80] 



THE OIL WAR OF 1872 

the consumer, though nobody had denied from the first that 
this was the purpose. In a circular, intended for private cir- 
culation, which appeared in the newspapers about this time 
explaining the objects of the South Improvement Company, 
this was made clear: 

"The object of this combination of interests," ran the cir- 
cular, "is understood to be twofold: firstly, to do away, at 
least in a great measure, with the excessive and undue com- 
petition now existing between the refining interest, by reason 
of there being a far greater refining capacity than is called 
for or justified by the existing petroleum-consuming require- 
ments of the world ; secondly, to avoid the heretofore undue 
competition between the various railroad companies trans- 
porting oil to the seaboard, by fixing a uniform rate of 
freight, which it is thought can be adhered to by some such 
arrangement as guaranteeing to each road some such per- 
centages of the profit of the aggregate amount of oil trans- 
ported, whether the particular line carries it or not. It is also 
asserted that a prominent feature of the combination will be 
to limit the production of refined petroleum to such amounts 
as may serve, in a great measure, to do away with the serious 
periodical depressions in the article. Is it also to be expected 
that, desiring to curtail the production of refined petroleum 
in this country, the railroads will not offer any additional 
facilities for exportation of the crude article." 

A writer in the Oil City Derrick, quoted in the Cleveland 
Herald, March 2, 1872, said: "The ring pretend that they 
will make their margin out of the consumers. That is, that 
they will put refined up to a figure that will enable them to 
pay well for crude. . . .. The consumers are the avowed 
victims, since they must pay a price which will warrant the 
ring in going on with their operations. And the producers' 
security for the price is a mere matter of discretion." 

Wherever the members of the company discussed the sub- 

[81] 



THE HISTORY OF THE STANDARD OIL COMPANY 
ject they put forward this object as one sufficient to justify 
the combination. If refined oil was put up everybody in the 
trade would make more money. To this end the public ought 
to be willing to pay more. 

When Mr. Warden was under examination by the com- 
mittee the chairman said to him: "Under your arrangement, 
the public would have been put to an additional expense of 
$7,500,000 a year." "What public?" said Mr. Warden. "They 
would have had to pay it in Europe." "But to keep up the 
price abroad you would have to keep up the price at home," 
said the chairman. Mr. Warden conceded the point: "You 
could not get a better price for that exported without having 
a better price here," he said.* 

Mr. Watson contended that the price could be put up with 
benefit to the consumer. And when he was asked how, he 
replied: "By steadying the trade. You will notice what all 
those familiar with this trade know, that there are very rapid 
and excessive fluctuations in the oil market; that when these 
fluctuations take place the retail dealers are always quick to 
note a rise in price, but very slow to note a fall. Even if 
two dollars a barrel had been added to the price of oil under a 
steady trade, I think the price of the retail purchaser would | 
not have been increased. That increased price would only 
amount to one cent a quart (four cents a gallon), and I think 
the price would not have been increased to the retail dealer 
because the fluctuations would have been avoided. That was 
one object to be accomplished." f 

The committee were not convinced, however, that a scheme 
which began by adding four cents to the price of a gallon 
of oil could be to the good of the consumer. Nor did any- 
thing appear in the contracts which showed how the fluctua- 
tions in the price of oil were to be avoided. These fluctuations' 

*See Appendix, Number 11. Extracts from the testimony of W. G. Warden. 
fSee Appendix, Number 12. Extracts from the testimony of Peter H. Watson, j 

[82] 



THE OIL WAR OF 1872 

were due to the rise and fall in the crude market, and that 
depended on the amount of crude coming from the ground. 
The South Improvement Company might assert that they 
meant to bring the producers into their scheme and persuade 
them to keep down the amoun/ of production in the same 
way they meant to keep down refined, so that the price could 
be kept steadily high, but they had nothing to prove that they 
were sincere in the intention, nothing to prove that they had 
thought of the producer seriously until the trouble in the Oil 
Regions began. It looked very much to the committee as if 
the real intention of the company was to keep up the price of 
refined to a certain figure by limiting the output, and that 
there was nothing to show that it would not go up with crude 
though it might not go down with it! Under these circum- 
stances it seemed as if a fluctuating market which gave a 
moderate average was better for the consumer than the steady 
high price which Mr. Watson thought so good for the pub- 
lic. Thirty-two cents a gallon was the ideal price they had 
in view, though refined had not sold for that since 1869, tne 
average price in 1870 being 26% and in 1871 24.%. The 
refiner who in 1871 sold his oil at 24J4 cents a gallon cleared 
easily fifty-two cents a barrel — a large profit on his investment, 
— but the refiners in the early stages of this new industry had 
made much larger profits. It was to perpetuate these early 
profits that they had gone into the South Improvement 
Company. 

It did not take the full exposition of the objects of the 
South Improvement Company, brought out by the Congres- 
sional Investigating Committee, with the publication of 
charters and contracts, to convince the country at large that 
the Oil Regions were right in their opposition. From the 
first the sympathy of the press and the people were with the 
oil men. It was evident to everybody that if the railroads had 
made the contracts as charged (and it daily became more 

[83] 



\y 



THE HISTORY OF THE STANDARD OIL COMPANY 

evident they had done so), nothing but an absolute monopoly 
of the whole oil business by this combination could result. 
It was robbery, cried the newspapers all over the land. 
"Under the thin guise of assisting in the development of oil- 
refining in Pittsburg and Cleveland," said the New York 
Tribune, "this corporation has simply laid its hand upon 
the throat of the oil traffic with a demand to 'stand and 
deliver.' " And if this could be done in the oil business, what 
was to prevent its being done in any other industry? Why 
should not a company be formed to control wheat or beef 
or iron or steel, as well as oil? If the railroads would do this 
for one company, why not for another? The South Improve- 
ment Company, men agreed, was a menace to the free trade 
of the country. If the oil men yielded now, all industries 
must suffer from their weakness. The railroads must be 
taught a lesson as well as would-be monopolists. / 

The oil men had no thought of yielding. With every day 
of the war their backbone grew stiffen The men were calmer, 
too, for their resistance had found a ground which seemed 
impregnable to them, and arguments against the South Im- 
provement Company now took the place of denunciations. 
On all sides men said, This is a transportation question, and ; 
now is the time to put an end once and forever to the rebates. 
The sentiment against discrimination on account of amount 
of freight or for any other reason had been strong in the 
country since its beginning, and it now crystallised imme- 
diately. The country so buzzed with discussion on the duties 
of the railroads that reporters sent from the Eastern news- 
papers commented on it. Nothing was commoner, indeed, on 
the trains which ran the length of the region and were its 
real forums, than to hear a man explaining that the railways 
derived their existence and power from the people, that theii j 
charters were contracts with the people, that a fundamental | 
provision of these contracts was that there should be no dis- 

[84] 




THE OIL WAR OF 1872 

criminating in favour of one person or one town, that such a 
discrimination was a violation of charter, that therefore the 
South Improvement Company was founded on fraud, and the* 
courts must dissolve it if the railways did not abandon it. The 
Petroleum Producers' Union which had been formed to 
grapple with the "Monster" actually demanded interstate 
regulation, for in a circular sent out to newspapers and 
boards of trade asking their aid against the conspiracy they 
included this paragraph: "We urge you to exert all your 
influence with your representatives in Congress to support 
such measures offered there as will prohibit for all future 
time any monopoly of railroads or other transportation com- 
panies from laying embargoes upon the trade between states 
by a system of excessive freights or unjust discrimination 
against buyers or shippers in any trade by the allowance of 
rebates or drawbacks to any persons whatever. This is a mat- 
ter of national importance, and only the most decided action 
can protect you and us from the scheming strength of these 
monopolies." 

How the whole question appeared to an intelligent oil 
man, one, too, who had had the courage to resist in the attack 
on the trade in Cleveland, and who still was master of his 
own refinery, is shown by the following letter to the Cleve- 
land Herald: 

Eds. Herald: As I understand, the financial success of this South Improvement 
Company is based upon contracts made with the officers (either individually or other- 
wise) of all the railroads leading out of the Oil Region, by which they (the South Im- 
provement Company) receive as a draw-back certain excess of freights, not only on 
every barrel of oil shipped out of the Oil Regions by or to themselves, but also on every 
barrel of oil shipped out of the Oil Regions by or to other refiners, or dealers, or con- 
sumers. 

The first advance in freights to Cleveland has already been made, viz.: on crude 
oil, from forty cents to sixty-five cents per barrel. This seemingly slight advance has 
already caused one party that I know of to pay an excess of over $2,000. Other firms 
have paid larger or smaller sums, according to the quantity of oil they were compelled 

[8s] 



THE HISTORY OF THE STANDARD OIL COMPANY 
to have. This excess, we suppose, goes directly to swell the profits of the South Im- 
provement Company. 

This is only the beginning. The whole extent of the evil that may be done to pro- 
ducers, refiners, dealers and consumers, and to the public generally, if this cor- 
poration — or rather combination of corporations — is successful, is so deep and varied 
and far reaching, that it cannot be fully comprehended and I will not attempt it in 
detail, but only suggest a few inquiries. 

Where will be their limits ? 

How high will they advance freights ? 

How low will they force the price of crude ? 

How high refined ? 

Will they adopt a liberal policy for producers, or will they destroy their interests 
and crush out the oil production entirely ? Will they be liberal with dealers and con- 
sumers and adopt uniform rules with steady prices, or will they take advantage of 
times and circumstances and force ruinous corners upon the trade ? 

These and many other questions are pertinent, for clearly if they can control the 
shipment they can control the price of oil, and if they can control the price to the 
extent of twenty-five cents per barrel, they can control it entirely. If they can control 
it entirely, where will be their limit ? Who will dictate a line of policy to them ? And 
may not one of the greatest and most important industries of this country be destroyed 
and hundreds of thousands of business men be made bankrupt if this combination is 
successful and has the disposition to work ruin ? I do not say that I think they will 
work ruin. They undoubtedly will attempt to make all the money they can and will 
pursue such a policy as in their judgment will bring them the utmost amount of 
profits, regardless of consequences, but what that policy will be, of course, we can 
•not judge. 

It is understood that the parties to this combination excuse themselves and their 
action before the public by reciting the undoubted facts in the case. They are these: 
that the refining of oil as a business has been of late and is now overdone; that the 
capacity for refining petroleum in this country exceeds the production in the ratio 
of three barrels to one; that the railroads have reduced freights to the lowest extreme, 
and were even losing money; that refiners, in spite of all their efforts, could not earn 
their running expenses; that the special interests of Cleveland as a refining point were 
in danger of being lost; and that this great business might go to other points, and 
the millions of dollars in refining property here be sacrificed, and thousands of men 
thrown out of employment; that real estate would depreciate, and that many other 
collateral troubles connected with the loss of this business would follow; and that 
now, by the consummation of the plans of this monopoly, all these evils will be 
avoided. 

In answer to this — assuming that the refining interest of Cleveland is a unit in 

[86] 



THE OIL WAR OF 1872 

this corporation, that of Pittsburg another, that of New York another, and that of 
Philadelphia another — it follows that it is immaterial to the stockholders of the "South 
Improvement Company" whether the oil produced at the Oil Regions is refined by them 
at their works in Cleveland, or at Pittsburg, or in New York, or in Philadelphia. It 
would not affect their dividends at all, provided they refined the oil at the cheapest 
point for them to do so. That place might be Cleveland; it might be Pittsburg, or it 
might not be either of them; but it might be New York or Philadelphia. Therefore, 
so long as it is for the pecuniary advantage of this combination to refine at Cleveland 
they may do so, but no longer, and should it be for the interest of the combination 
to discontinue their works at Cleveland, what would become of the oil-refining interest 
at this point ? That question everyone can answer. Therefore I see little weight to 
the argument used that this monopoly is for the benefit of Cleveland. Hence, I do 
not consider the special danger to Cleveland by any means as averted. 

But without discussing this position, its advantages or disadvantages, as an oil- 
refining center — for it has both in a marked degree — on general principles I will 
assert that the laws of business and manufacturing interests, like the laws of supply 
and demand, are unchangeable, and that a prosperity such as this monopoly would 
bring us is a forced prosperity, consequently not permanent, but temporary and 
fictitious in character, and damaging in its ultimate results; and more than all this, 
if the refining prosperity of Cleveland could be re-established permanently by means 
of the success of this monopoly, we could not afford to accept it at the cost proposed, 
viz., that of enriching ourselves at the expense of those who are weaker, but are in 
power. 

We have just refused to build an opera-house because we should, by using the 
only means we could command to do so, compromise our morality. How much more 
emphatically should we refuse to accept any benefits to our city which have their 
origin in unmitigated fraud! In the opera-house instance just cited the managers 
use no compulsion, no unwilling man was to be forced by them to buy a ticket and take 
his chances; but the South Improvement Company force every producer to take a 
less price for his oil without rendering him an equivalent. 

They force every refiner who is in their way to prosecute his business against them 
as competitors at fearful odds, and perhaps at the expense of a royalty on every barrel; 
or to sell his works and abandon his business to the South Improvement Company 
at any paltry price they may dictate. 

They also force every consumer of oil on this broad continent, after paying all 

»e legitimate cost of producing, refining, and transportation on oil, to pay them also 
1 additional tribute — for what ? Absolutely nothing. 
The railroad companies derive their existence and power to act under charters 
granted them by the citizens (through their Legislatures) of the several states in which 
they exist. This charter is a contract made by and between the citizens of the one 



- 



THE HISTORY OF THE STANDARD OIL COMPANY 

part and the railroad company on the other, and both parties bind themselves alike 
to the faithful performance of the conditions of the contract. One of the funda- 
mental provisions of this contract is that there shall be no discrimination shown to 
any individuals, or body of individuals, as to facilities or privileges of doing business 
with such railroad company; on the contrary, the railroad company is expressly required 
in all cases to charge uniform rates for the transportation of freight and passengers. 

They must, if desired, carry the freight for A that they do for B, AND ALWAYS 
AT THE SAME PRICE. Any deviation from this stipulated condition is a wilful and 
fraudulent violation of their contract. If it is by means of such violations of contracts 
on the part of the several railroad companies connected with them that the South 
Improvement Company expects success, then the whole gigantic STRUCTURE IS 
ESTABLISHED UPON FRAUD AS A BASIS, AND IT OUGHT TO COME 
DOWN. Very respectfully, 

Cleveland, Ohio, March 5, 1872. F. M. Backus. 

The oil men now met the very plausible reasons given by 
the members of the company for their combination more 
intelligently than at first. There were grave abuses in the 
business, they admitted; there was too great refining capacity; 
but this they argued was a natural development in a new 
business whose growth had been extraordinary and whose 
limits were by no means defined. Time and experience would 
regulate it. Give the refiners open and regular freights, with 
no favours to any one, and the stronger and better equipped 
would live, the others die — but give all a chance. In fact, 
time and energy would regulate all the evils of which they 
complained if there were fair play. 

The oil men were not only encouraged by public opinion 
and by getting their minds clear on the merits of their case; 
they were upheld by repeated proofs of aid from all sides; 
even the women of the region were asking what they could 
do, and were offering to wear their "black velvet bonnets" all 
summer if necessary. Solid support came from the inde- 
pendent refiners and shippers in other parts of the country 
who were offering to stand in with them in their contest. 
New York was already one of the chief refining centres of 

[88] 




HENRY H. ROGERS IN 1872 

Now President of the National Transit Company and a director of the 
Standard Oil Company. The opposition to the South Improvement Company 
among the New York refiners was led by Mr. Rogers. 






THE OIL WAR OF 1872 

the country, and the South Improvement Company had left 
it entirely out of its combination. As incensed as the creek 
itself, the New York interests formed an association, and 
about the middle of March sent a committee of three, with 
H. H. Rogers, of Charles Pratt and Company, at its head, to 
Oil City, to consult with the Producers' Union. Their arrival 
in the Oil Regions was a matter of great satisfaction. What 
made the oil men most exultant, however, was their growing 
belief that the railroads — the crux of the whole scheme — were 
weakening. 

However fair the great scheme may have appeared to the 
railroad kings in the privacy of the council chamber, it began 
to look dark as soon as it was dragged into the open, and signs 
of a scuttle soon appeared. General G. B. McClellan, presi-i 
dent of the Atlantic and Great Western, sent to the very first 
mass-meeting this telegram: 

New York, February 27, 1872. 
Neither the Atlantic and Great Western, nor any of its officers, are interested in the 
South Improvement Company. Of course the policy of the road is to accommodate 
the petroleum interest. 

G. B. McClellan. 

A great applause was started, only to be stopped by the 
hisses of a group whose spokesman read the following: 

Contract with South Improvement Company signed by George B. McClellan, presi- 
dent for the Atlantic and Great Western Railroad. I only signed it after it was 
signed by all the other parties. 

Jay Gould. 

The railroads tried in various ways to appease the oil men. 
They did not enforce the new rates. They had signed the con- 
tracts, they declared, only after the South Improvement Com- 
pany had assured them that all the refinerie s and producers 
were to be taken in. Indeed, they seem to have realised within 
a fortnight that the scheme was doomed, and to have been 
quite ready to meet cordially a committee of oil men which 

[89] 



THE HISTORY OF THE STANDARD OIL COMPANY 

went East to demand that the railroads revoke their contracts 
with the South Improvement Company. This committee, 
which was composed of twelve persons, three of them being 
the New York representatives already mentioned, began its 
work by an interview with Colonel Scott at the Colonial 
Hotel in Philadelphia. With evident pride the committee 
wrote back to the Producers' Union: "Mr. Scott, differing 
in this respect from the railroad representatives whom we 
afterwards met, notified us that he would call upon us at our 
hotel." An interesting account of their interview was given 
to the Hepburn Committee in 1879 by W. T. Scheide, one 
of the number: 



We saw Mr. Scott on the 18th of March, 1872, in Philadelphia, and he said to us 
that he was very much surprised to hear of this agitation in the Oil Regions; that the 
object of the railroads in making this contract with the South Improvement Company 
was to obtain an evener to pool the freight — pool the oil freights among the different 
roads; that they had been cutting each other on oil freights for a number of years, and 
had not made any money out of it, although it was a freight they should have made 
money from; that they had endeavoured to make an arrangement among themselves, 
but had always failed; he said that they supposed that the gentlemen representing 
the South Improvement Company represented the petroleum trade, but as he was 
now convinced they did not, he would be very glad to make an arrangement with this 
committee, who undoubtedly did represent the petroleum trade; the committee told 
him that they could not make any such contract; that they had no legal authority 
to do so; he said that could be easily fixed, because the Legislature was then in session, 
and by going to Harrisburg a charter could be obtained in a very few days; the com- 
mittee still said that they would not agree to any such arrangement, that they did 
not think the South Improvement Company's contract was a good one, and they were 
instructed to have it broken, and so they did not feel that they could accept a similar 
one, even if they had the power. 

Leaving Colonel Scott the committee went on to New 
York, where they stayed for about a week, closely watched by] 
the newspapers, all of which treated the "Oil War" as a I 
national affair. Their first interview of importance in New! 

[90] 



THE OIL WAR OF 1872 

York was with Commodore Vanderbilt, who said to them 
very frankly at the beginning of their talk: "I told Billy 
(W. H. Vanderbilt) not to have anything to do with that 
scheme." The committee in its report said that the Commo- 
dore fully agreed with them upon the justice of their claims, 
and frequently asserted his objections to any combination seek- 
ing a monopoly of other men's property and interests. He 
told them that if what they asked was that the railroads should 
fix a tariff which, while giving them a paying rate, would 
secure the oil men against drawbacks, rebates, or variations in 
the tariff, he would willingly co-operate. The Commodore 
ended his amiable concessions by reading the committee a let- 
ter just received from the South Improvement Company offer- 
ing to co-operate with the producers and refiners or to com- 
promise existing differences. The oil men told the Commodore 
emphatically that they would not treat with the South 
Improvement Company or with anyone interested in it nor 
would they recognise its existence. And this stand they kept 
throughout their negotiations though repeated efforts were 
made by the railroad men, particularly those of the Central 
system, to persuade them to a compromise. 

At the meeting with the officials of the Erie and the 
Atlantic and Great Western the committee was incensed by 
being offered a contract similar to that of the South Improve- 
ment Company — on consideration that the original be allowed 
to stand. It seemed impossible to the railroad men that the oil 
men really meant what they said and would make no terms 
save on the basis of no discriminations of any kind to anybody. 
They evidently believed that if the committee had a chance 
to sign a contract as profitable as that of the South Improve- 

F™"t Company, all their fair talk of "fair play" — "the duty 
le common carrier" — "equal chance to all in transporta- 
■ — would at once evaporate. They failed utterly at first 
Dmprehend that the Oil War of 1872 was an uprising 
... 



THE HISTORY OF THE STANDARD OIL COMPANY 

against an injustice, and that the moral wrong of the thing 
had taken so deep a hold of the oil country that the people 
as a whole had combined to restore right. General McClellan 
of the Atlantic and Great Western and Mr. Diven, one of the 
Erie's directors, were the only ones who gave the committee 
any support in their position. 

The final all-important conference with the railroad men 
was held on March 25, at the Erie offices. Horace Clark, 
president of the Lake Shore and Michigan Southern Rail- 
road, was chairman of this meeting, and, according to H. H. 
Rogers' testimony before the Hepburn Committee, in 1879, 
there were present, besides the oil men, Colonel Scott, General 
McClellan, Director Diven, William H. Vanderbilt, Mr. 
Stebbins, and George Hall. The meeting had not been long in 
session before Mr. Watson, president of the South Improve- 
ment Company, and John D. Rockefeller presented them- 
selves for admission. Up to this time Mr. Rockefeller had 
kept well out of sight in the affair. He had given no inter- 
views, offered no explanations. He had allowed the president 
of the company to wrestle with the excitement in his own way, 
but things were now in such critical shape that he came for- 
ward in a last attempt to save the organisation by which he had 
been able to concentrate in his own hands the refining inter- 
ests of Cleveland. With Mr. Watson he knocked for admis- 
sion to the council going on in the Erie offices. The oil men 
flatly refused to let them in. A dramatic scene followed, Mr. 
Clark, the chairman, protesting in agitated tones against shut- 
ting out his "life-long friend, Watson." The oil men were 
obdurate. They would have nothing to do with anybody con- 
cerned with the South Improvement Company. So determined 
were they that although Mr. Watson came in he was obliged 
at once to withdraw. A Times reporter who witnessed the 
little scene between the two supporters of the tottering com- 
pany after its president was turned out of the meeting 

[92] 



THE OIL WAR OF 1872 

remarked sympathetically that Mr. Rockefeller soon went 
away, "looking pretty blue." 

The acquiescence of the "railroad kings" in the refusal of 
the oil men to recognise representatives of the South Improve- 
ment Company was followed by an unwilling promise to break 
the contracts with the company. Another strong effort was 
made to persuade the independents to make the same con- 
tracts on condition that they shipped as much oil, but they 
would not hear of it. They demanded open rates, with no 
rebates to anyone. Horace Clark and W. H. Vanderbilt par- 
ticularly stuck for this arrangement. Their opposition to the oil 
men's position was so strong that the latter in reporting it to 

I he Union said: "We feel it proper to say that we are in no 
rise indebted to these gentlemen for any courtesy or con- 
ideration received at their hands." So well did the committee 
fight its battle and so strongly were they supported by the 
New York refiners that the railroads were finally obliged to 
consent to revoke the contracts and to make a new one embody- 
ing the views of the Oil Regions. The contract finally signed 
at this meeting by H. F. Clark for the Lake Shore road, 
O. H. P. Archer for the Erie, W. H. Vanderbilt for the 
Central, George B. McClellan for the Atlantic and Great 
Western, and Thomas A. Scott for the Pennsylvania, agreed 
that all shipping of oil should be made on "a basis of perfect 
equality to all shippers, producers, and refiners, and that no 
rebates, drawbacks, or other arrangements of any character 
shall be made or allowed that will give any party the slightest 
difference in rates or discriminations of any character what- 
ever." * It was also agreed that the rates should not be liable 
I to change either for increase or decrease without first giving 
William Hasson, president of the Producers' Union, at least 
ninety days' notice. 
The same rate was put on refined oil from Cleveland, Pitts- 
* See Appendix, Number 13. Contract of March 25, 1872. 
[93] 



THE HISTORY OF THE STANDARD OIL COMPANY 

burg and the creek, to Eastern shipping points ; that is, M 
Rockefeller could send his oil from Cleveland to New York 
at $1.50 per barrel; so could his associates in Pittsburg; and 
this was what it cost the refiner on the creek; but the latter 
had this advantage: he was at the wells. Mr. Rockefeller and 
his Pittsburg allies were miles away, and it cost them, by the 
new contract, fifty cents to get a barrel of crude to their 
works. The Oil Regions meant that geographical position 
should count, that the advantages Mr. Rockefeller had by his 
command of the Western market and by his access to a cheap 
Eastward waterway should be considered as well as their own 
position beside the raw product. 

This contract was the first effective thrust into the great 
bubble. Others followed in quick succession. On the 28th the 
railroads officially annulled their contracts with the company. 
About the same time the Pennsylvania Legislature repealed 
the charter. On March 30 the committee of oil men sent to 
Washington to be present during the Congressional Investiga- 
tion, now about to begin, spent an hour with President Grant. 
They wired home that on their departure he said: "Gentle- 
men, I have noticed the progress of monopolies, and have long 
been convinced that the national government would have 
to interfere and protect the people against them." The Presi- 
dent and the members of Congress of both parties continued 
to show interest in the investigation, and there was little or 
no dissent from the final judgment of the committee, given 
early in May, that the South Improvement Company was the 
"most gigantic and daring conspiracy" a free country had 
ever seen. This decision finished the work. The "Monster" 
was slain, the Oil Regions proclaimed exultantly. 

And now came the question, What should they do about the 
blockade established against the members of the South 
Improvement Company? The railroads they had forgiven; 
should they forgive the members of the South Improvement 

[94] 



. 



THE OIL WAR OF 1872 

Company? This question came up immediately on the repeal 
of the charter. The first severe test to which their temper was 
put was early in April, when the Fisher Brothers, a firm of Oil 
City brokers, sold some 20,000 barrels of oil to the Standard 
Oil Company. The moment the sale was noised a perfect 
uproar burst forth. Indignant telegrams came from every 
direction condemning the brokers. "Betrayal," "infamy," 
"mercenary achievement," "the most unkindest cut of all," 
was the gist of them. From New York, Porter and Archbold 
telegraphed annulling all their contracts with the guilty 
brokers. The Oil Exchange passed votes of censure, and the 
Producers' Union turned them out. A few days later it was 
learned that a dealer on the creek was preparing to ship 5,000 
barrels to the same firm. A mob gathered about the cars and 
refused to let them leave. It was only by stationing a strong 
guard that the destruction of the oil was prevented. 

But something had to be done. The cooler heads argued 
that the blockade, which had lasted now forty days, and from 
which the region had of course suffered enormous loss, should 
be entirely lifted. The objects for which it had been established 
had been accomplished — that is, the South Improvement 
Company had been destroyed — now let free trade be estab- 
lished. If anybody wanted to sell to "conspirators," it was his 
lookout. A long and excited meeting of men from the entire 
oil country was held at Oil City to discuss the question. 

The president of the Petroleum Producers' Union, Captain 
William Hasson, in anticipation of the meeting, had sent to 
the officers of all the railroads which had been parties to the 
South Improvement Company, the following telegram: 

Office Petroleum Producers' Union, 

Oil City, Pennsylvania, April 4, 1872. 
We are informed by parties known as members of the South Improvement Com- 
pany, now representing the Standard Oil Company, who are in the market over- 
bidding other shippers, that all contracts between the railroad companies and South 

[95] 



V 



THE HISTORY OF THE STANDARD OIL COMPANY 
Improvement and Standard Companies are cancelled. Will you please give us official 
notice whether such contracts are cancelled or not t The people in mass-meeting 
assembled have instructed the executive committee not to sell or ship any oil to these 
parties until we receive such notice. Please answer at once, as we fear violence and 

destruction of property. 

Signed William Hasson, President. 

General McClellan, Horace F. Clark, Thomas A. Scott, and 
W. H. Vanderbilt all sent emphatic telegrams in reply, assert- 
ing that the South Improvement contracts had been cancelled 
and that their roads had no understanding of any nature in 
regard to freights with the Standard Oil Company. "The 
only existing arrangement is with you," telegraphed General 
McClellan. W. H. Vanderbilt reminded Mr. Hasson that the 
agreement of March 25, between the railroad companies and 
the joint committee of producers and refiners, was on a basis of \ 
perfect equality for all, and the inference was, how could Mr. ! 
Vanderbilt possibly make a special arrangement with the 
Standard? From the Standard Oil Company the following 
was received: 

Cleveland, Ohio, April 8, 1872. 
To Captain William Hasson : In answer to your telegram, this company holds no 
contract with the railroad companies or any of them, or with the South Improvement 
Company. The contracts between the South Improvement Company and the rail- 
roads have been cancelled, and I am informed you have been so advised by telegram. 
I state unqualifiedly that reports circulated in the Oil Region and elsewhere, that 
this company, or any member of it, threatened to depress oil, are false. 

John D. Rockefeller, President. 

After reading all the telegrams the committee submitted its 
report. The gist of it was that since they had official assurance 
that the hated contracts were cancelled, and that since they 
had secured from all the trunk lines a "fair rate of freight, 
equal to all shippers and producers, great or small, with an 
abolition of the system of rebates and drawbacks," the time 
had arrived "to open the channels of trade to all parties desir- 
ing to purchase or deal in oil on terms of equality." The 

[96] 



THE OIL WAR OF 1872 

report was received with "approbation and delight" and put 
an official end to the "Oil War." 

But no number of resolutions could wipe out the memory 
of the forty days of terrible excitement and loss which the 
region had suffered. No triumph could stifle the suspicion and 
the bitterness which had been sown broadcast through the 
region. Every particle of independent manhood in these men 
whose very life was independent action had been outraged. 
Their sense of fair play, the saving force of the region in the 
days before law and order had been established, had been 
violated. These were things which could not be forgotten. 
There henceforth could be no trust in those who had devised 
a scheme which, the producers believed, was intended to rob 
them of their property. 

It was inevitable that under the pressure of their indigna- 
tion and resentment some person or persons should be fixed 
upon as responsible, and should be hated accordingly. Before 
the lifting of the embargo this responsibility had been fixed. 
It was the Standard Oil Company of Cleveland, so the Oil 
Regions decided, which was at the bottom of the business, and 
the "Mephistopheles of the Cleveland company," as they put 
it, was JohoJD. Rockefeller. Even the Cleveland Herald 
acknowledged this popular judgment. "Whether justly or 
unjustly," the editor wrote, "Cleveland has the odium of hav- 
ing originated the scheme." This opinion gained ground as 
the days passed. The activity of the president of the Standard 
in New York, in trying to save the contracts with the rail- 
roads, and his constant appearance with Mr. Watson, and the 
fact brought out by the Congressional Investigation that a 
larger block of the South Improvement Company's stock was 
owned in the Standard than in any other firm, strengthened 
the belief. But what did more than anything else to fix the 
conviction was what they had learned of the career of the 
Standard Oil Company in Cleveland. Before the Oil War the 

[97] 



THE HISTORY OF THE STANDARD OIL COMPANY 

company had been known simply as one of several successful 
firms in that city. It drove close bargains, but it paid 
promptly, and was considered a desirable customer. Now the 
Oil Regions learned for the first time of the sudden and 
phenomenal expansion of the company. Where there had been 
at the beginning of 1872 twenty-six refining firms in Cleve- 
land, there were but six left. In three months before and 
during the Oil War the Standard had absorbed twenty plants. 
It was generally charged by the Cleveland refiners that Mr. 
Rockefeller had used the South Improvement scheme to per- 
suade or compel his rivals to sell to him. "Why," cried the 
oil men, "the Standard Oil Company has done already in 
Cleveland what the South Improvement Company set out to 
do for the whole country, and it has done it by the same 
means." 

By the time the blockade was raised, another unhappy 
conviction was fixed on the Oil Regions — the Standard Oil 
Company meant to carry out the plans of the exploded South 
Improvement Company. The promoters of the scheme were 
partly responsible for the report. Under the smart of their 
defeat they talked rather more freely than their policy of 
silence justified, and their remarks were quoted widely. Mr. 
Rockefeller was reported in the Derrick to have said to a 
prominent oil man of Oil City that the South Improvement 
Company could work under the charter of the Standard Oil 
Company, and to have predicted that in less than two months 
the gentlemen would be glad to join him. The newspapers 
made much of the following similar story reported by a New 
York correspondent: 

A prominent Cleveland member of what was the South Improvement Company had 
said within two days: "The business now will be done by the Standard Oil Company. 
We have a rate of freight by water from Cleveland to New York at seventy cents. 
No man in the trade shall make a dollar this year. We purpose to manipulating the 
market as to run the price of crude on the creek as low as two and a half. We mean 

[98] 



THE OIL WAR OF 1872 

to show the world that the South Improvement Company was organised for business 
and means business in spite of opposition. The same thing has been said in substance 
by the leading Philadelphia member." 

"The trade here regards the Standard Oil Company as sim- 
ply taking the place of the South Improvement Company and 
as being ready at any moment to make the same attempt to 
control the trade as its progenitors did," said the New York 
Bulletin about the middle of April. And the Cleveland 
Herald discussed the situation under the heading, "South 
Improvement Company alias Standard Oil Company." The 
effect of these reports in the Oil Regions was most disastrous. 
Their open war became a kind of guerilla opposition. Those 
who sold oil to the Standard were ostracised, and its president 
was openly scorned. 

If Mr. Rockefeller had been an ordinary man the outburst 
of popular contempt and suspicion which suddenly poured on 
his head would have thwarted and crushed him. But he was no 
ordinary man. He had the po werful im agination to see what 
might be done with the oil business if it could be centered 
in his hands — the intelligence to analyse the problem into its 
elements and to find the key to control. He had the essential 
element of all great achievement, a steadfastness to a purpose 
once conceived which nothing can crush. The Oil Regions 
might rage, call him a conspirator, and all those who sold him 
oil, traitors; the railroads might withdraw their contracts and 
the Legislature annul his charter; undisturbed and unresting 
he kept at his great purpose. Even if his nature had not 
been such as to forbid him to abandon an enterprise in which 
he saw promise of vast profits, even if he had not had a 
mind which, stopped by a wall, burrows under or creeps 
around, he would nevertheless have been forced to desperate 
efforts to keep up his business. He had increased his refining 
capacity in Cleveland to 10,000 barrels on the strength of the 
South Improvement Company contracts. These contracts were 
I [ 99 ] 



THE HISTORY OF THE STANDARD OIL COMPANY 

annulled, and in their place was one signed by officials of all 
the oil-shipping roads refusing rebates to everybody. His geo- 
graphical position was such that it cost him under these new 
contracts fifty cents more to get oil from the wells to New 
York than it did his rivals on the creek. True, he had many 
counterbalancing advantages — a growing Western market 
almost entirely in his hands, lake traffic, close proximity to all 
sorts of accessories to his manufacturing, but this contract put 
him on a level with his rivals. By his size he should have better 
terms than they. What did he do? 

He got a rebate. Seven years later Mr. Rockefeller's part- 
ner, H. M. Flagler, was called before a commission of the 
Ohio State Legislature appointed to investigate railroads. 
He was asked for the former contracts between his company 
and the railroads, and among others he presented one showing 
that from "the first of April until the middle of November, 
1872," their East-bound rate was $1.25, twenty-five cents less 
than that set by the agreement of March 25th, between the oil 
men and the railroads.* The discrepancy between the date 
Mr. Flagler gives for this contract and that of Mr. Vander- 
bilt's telegram to Mr. Hasson stating that his road had no 
contract with the Standard Oil Company, April 6, and of Mr. 
Rockefeller's own telegram stating he had no contracts with 
the railroads, April 8, the writer is unable to explain. How 
had Mr. Rockefeller been able to get this rebate? Simply as 
he had always done — by virtue of the quantity he shipped. He 
was able to say to Mr. Vanderbilt, I can make a contract to 
ship sixty car-loads of oil a day over your road— nearly 4,800 
barrels; I cannot give this to you regularly unless you will 
make me a concession; and Mr. Vanderbilt made the conces- 
sion while he was signing the contract with the oil men. Of 
course the rate was secret, and Mr. Rockefeller probably 
understood now, as he had not two months before, how essen- 

* See Appendix, Number 14. Testimony of Henry M. Flagler. 

[ 100] 



THE OIL WAR OF 1872 

tial iijsvas that he keep it secret. His task was more difficult 
now, for he had an enemy active, clamorous, contemptuous, 
whose suspicions had reached that acute point where they 
could believe nothing but evil of him — the producers and 
independent refiners of the Oil Regions. It was utterly impos- 
sible that he should ever silence this enemy, for their points 
of view were diametrically opposed. 

They believed in independent effort — every man for him- 
self and fair play for all. They wanted competition, loved 
open fight. They considered that all business should be done 
openly; that the railways were bound as public carriers to 
give equal rates; that any combination which favoured one 
firm or one locality at the expense of another was unjust and 
illegal. This belief long held by many of the oil men had 
been crystallised by the uprising into a common sentiment. 
It had become the moral code of the region. 

Mr. Rockefeller's point of view was different. He believed 
that the "good of all" was in a combination which would 
control the business as the South Improvement Company pro- 
posed to control it. Such a combination would end at once all 
the abuses the business suffered. As rebates and special rates 
were essential to this control, he favoured them. Of course 
Mr. Rockefeller must have known that the railroad was a 
common carrier, and that the common law forbade discrimi- 
nation. But he knew that the railroads had not obeyed the laws 
governing them, that they had regularly granted special rates 
and rebates to those who had large amounts of freight. That 
is, you were able to bargain with the railroads as you did 
with a man carrying on a strictly private business depending 
in no way on a public franchise. Moreover, Mr. Rockefeller 
probably believed that, in spite of the agreements, if he did not 
get rebates somebody else would; that they were for the wari- 
est, the shrewdest, the most persistent. If somebody was to 
get rebates, why not he? This point of view was no uncommon 

[101] 



THE HISTORY OF THE STANDARD OIL COMPANY 

one. Many men held it and felt a sort of scorn, as practical 
men always do for theorists, when it was contended that the 
shipper was as wrong in taking rates as the railroads in 
granting them. 

Thus, on one hand there was an exaggerated sense of per- 
sonal independence, on the other a firm belief in combination; 
on one hand a determination to root out the vicious system of 
rebates practised by the railway, on the other a determination 
to keep it alive and profit by it. Those theories which the body 
of oil men held as vital and fundamental Mr. Rockefeller 
and his associates either did not comprehend or were deaf 
to. This lack of comprehension by many men of what seems 
to other men to be the most obvious principles of justice is 
not rare. Many men who are widely known as good, share it. 
Mr. Rockefeller was "good." There was no more faithful 
Baptist in Cleveland than he. Every enterprise of that church 
he had supported liberally from his youth. He gave to its 
poor. He visited its sick. He wept with its suffering. More- 
over, he gave unostentatiously to many outside charities of 
whose worthiness he was satisfied. He was simple and frugal 
in his habits. He never went to the theatre, never drank wine. 
He gave much time to the training of his children, seeking 
to develop in them his own habits of economy and of charity. 
Yet he was willing to strain every nerve to obtain for himself 
special and unjust privileges from the railroads which were 
bound to ruin every man in the oil business not sharing them 
with him. He was willing to array himself against the com- 
bined better sentiment of a whole industry, to oppose a popu- 
lar movement aimed at righting an injustice, so revolting to 
one's sense of fair play as that of railroad discriminations.- 
Religious emotion and sentiments of charity, propriety and 
self-denial seem to have taken the place in him of notions of 
justice and regard for the rights of others. 

Unhampered, then, by any ethical consideration, undis- 

[ 102] 



THE OIL WAR OF 1872 

mayed by the clamour of the Oil Regions, believing firmly 
as ever that relief for the disorders in the oil business lay in 
combining and controlling the entire refining interest, this 
man of vast patience and foresight took up his work. That 
work now was to carry out some kind of a scheme which 
would limit the output of refined oil. He had put his competi- 
tors in Cleveland out of the way. He had secured special privi- 
leges in transportation, but there were still too many refineries 
at work to make it possible to put up the price of oil four 
cents a gallon. It was certain, too, that no scheme could be 
worked to do that unless the Oil Regions could be mollified. 
That now was Mr. Rockefeller's most important business. Just 
how he began is not known. It is only certain that the day 
after the newspapers of the Oil Regions printed the report 
of the Congressional Committee on Commerce denouncing the 
South Improvement Company as "one of the most gigantic 
and dangerous conspiracies ever attempted," and declaring 
that if it had not been checked in time it "would have resulted 
in the absorption and arbitrary control of trade in all the great 
interests of the country." * Mr. Rockefeller and several other 
members of the South Improvement Company appeared in the 
Oil Regions. They had come, they explained, to present a new 
plan of co-operation, and to show the oil men that it was to 
their interest to go into it. Whether they would be able to 
obtain by persuasion what they had failed to obtain by assault 
was now an interesting uncertainty. 

* The report of the committee of Congress which investigated the South Improve- 
ment Company was not made until May 7, over a month after the organisation was 
destroyed by the cancelling of the contracts with the railroads. 



[103] 



CHAPTER FOUR 

"AN UNHOLY ALLIANCE" 

ROCKEFELLER AND HIS PARTY NOW PROPOSE AN OPEN INSTEAD OF A 
SECRET COMBINATION— " THE PITTSBURG PLAN"— THE SCHEME IS NOT 
APPROVED BY THE OIL REGIONS BECAUSE ITS CHIEF STRENGTH IS THE 
REBATE — ROCKEFELLER NOT DISCOURAGED — THREE MONTHS LATER 
BECOMES PRESIDENT OF NATIONAL REFINERS' ASSOCIATION— FOUR-FIFTHS 
OF REFINING INTEREST OF UNITED STATES WITH HIM— OIL REGIONS 
AROUSED— PRODUCERS' UNION ORDER DRILLING STOPPED AND A THIRTY 
DAY SHUT-DOWN TO COUNTERACT FALLING PRICE OF CRUDE— PETRO- 
LEUM PRODUCERS' AGENCY FORMED TO ENABLE PRODUCERS TO CON- 
TROL THEIR OWN OIL— ROCKEFELLER OUTGENERALS HIS OPPONENTS AND 
FORCES A COMBINATION OF REFINERS AND PRODUCERS — PRODUCERS' 
ASSOCIATION AND PRODUCERS' AGENCY SNUFFED OUT— NATIONAL REFIN- 
ERS' ASSOCIATION DISBANDS— ROCKEFELLER STEADILY GAINING GROUND. 

THE feeling of outrage and resentment against the 
Standard Oil Company, general in the Oil Regions 
at the close of the Oil War because of the belief that 
it intended to carry on the South Improvement 
Company in some new way, was intensified in the weeks 
immediately following the outbreak by the knowledge that 
Mr. Rockefeller had been so enormously benefited by the 
short-lived concern. Here he was shipping Eastward over 
one road between 4,000 and 5,000 barrels of refined oil a 
day- — oil wrung from his neighbours by an outrageous con- 
spiracy, men said bitterly. This feeling was still keen when 
Mr. Rockefeller and several of his colleagues in the South 
Improvement scheme suddenly, in May, 1873, appeared 
on the streets of Titusville. The men who had fought him 
so desperately now stared in amazement at the smiling, 

[ "M] 



"AN UNHOLY ALLIANCE" 

unruffled countenance with which he greeted them. Did 
not the man know when he was beaten? Did he not realise 
the opinion the Oil Regions held of him? His placid de- 
meanour in the very teeth of their violence was discon- 
certing. 

Not less of a shock was given the country by the knowledge 
that Mr. Rockefeller, Mr. Flagler, Mr. Waring and the 
other gentlemen in their party were pressing a new alliance, 
and that they claimed that their new scheme had none of the 
obnoxious features of the defunct South Improvement Com- 
pany, though it was equally well adapted to work out the 
"good of the oil business." 

For several days the visiting gentlemen slipped around, 
bland and smiling, from street corner to street corner, from 
office to office, explaining, expostulating, mollifying. "You 
misunderstand our intention," they told the refiners. "It is to 
save the business, not to destroy it, that we are come. You 
see the disorders competition has wrought in the oil industry. 
Let us see what combination will do. Let us make an experi- 
ment — that is all. If it does not work, then we can go back to 
the old method." 

Although Mr. Rockefeller was everywhere, and heard 
everything in these days, he rarely talked. "I remember well 
how little he said," one of the most aggressively independent 
of the Titusville refiners told the writer. "One day several of 
us met at the office of one of the refiners, who, I felt pretty 
sure, was being persuaded to go into the scheme which they 
were talking up. Everybody talked except Mr. Rockefeller. 
He sat in a rocking-chair, softly swinging back and forth, his 
hands over his face. I got pretty excited when I saw how 
those South Improvement men were pulling the wool over 
our men's eyes, and making them believe we were all going 
to the dogs if there wasn't an immediate combination to put 
up the price of refined and prevent new people coming into 

[105] 



THE HISTORY OF THE STANDARD OIL COMPANY 

the business, and I made a speech which, I guess, was pretty 
warlike. Well, right in the middle of it John Rockefeller 
stopped rocking and took down his hands and looked at 
me. You never saw such eyes. He took me all in, saw just how 
much fight he could expect from me, and I knew it, and then 
up went his hands and back and forth went his chair." 

For fully a week this quiet circulation among the oil men 
went on, and then, on May 15 and 16, public meetings 
were held in Titusville, at which the new scheme which 
they had been advocating was presented publicly. This new 
plan, called the "Pittsburg Plan"* from the place of its birth, 
had been worked out by the visiting gentlemen before they 
came to the Oil Regions. It was a most intelligent and compre- 
hensive proposition. 

As in the case of the South Improvement scheme, a company 
was to be formed to run the refining business of the whole 
country, but this company was to be an open instead of a 
secret organisation, and all refiners were to be allowed to 
become stockholders in it. The owners of the refineries who 
went into the combination were then to run them in certain 
particulars according to the direction of the board of the 
parent company; that is, they were to refine only such an 
amount of oil as the board allowed, and they were to keep 
up the price, for their output as the board indicated. The 
buying of crude oil and the arrangements for transportation 
were also to remain with the directors. Each stockholder was 
to receive dividends whether his plant operated or not. The 
"Pittsburg Plan" was presented tentatively. If anything better 
could be suggested they would gladly accept it, its advocates 
said. "All we want is a practical combination. We are wed ! 
to no particular form." 

The first revelation of the public meetings at which the 
"Pittsburg Plan" was presented was that in the days Mr. 

* See Appendix, Number 15. The Pittsburg Plan. 

[106] 



"AN UNHOLY ALLIANCE" 

Rockefeller and his friends had been so diligently shaking 
hands with the oil men from Titusville to Oil City they had 
made converts — that they had not entered these open meetings 
until they had secured the assurance of co-operation in any 
plan of consolidation which might be effected from some of 
the ablest refiners and business men of the creek, notably 
from J. J. Vandergrift of Oil City, and from certain firms of 
Titusville with which John D. Archbold was connected. All 
of these persons had fought the South Improvement Com- 
pany, and they all now declared that if the proposed organisa- 
tion copied that piratical scheme they would have noth- 
ing to do with it, that their allegiance to the plan was based 
on their conviction that it was fair to all — who went inl — and 
that it was made necessary by over-refining, underselling, and 
by the certainty that the railroads could not be trusted to keep 
their contracts. It was evident that the possible profits and 
power to be gained by a successful combination had wiped out 
their resentment against the leaders of the South Improve- 
ment Company, and that if they had the assurance, as they 
must have had, that rebates were a part of the game, they 
justified themselves by the reflection that somebody was sure 
to get them, and that it might as well be they as anybody. 

The knowledge that a considerable body of the creek 
refiners had gone over to Mr. Rockefeller awakened a general 
bitterness among those who remained independent. "De- 
serters," "ringsters," "monopolists," were the terms applied 
to them, and the temper of the public meetings, as is evident 
from the full reports the newspapers of the Oil Region pub- 
lished, became at once uncertain. There were long pauses in 
le proceedings, everybody fearing to speak. Mr. Rocke- 
:ller is not reported as having spoken at all, the brunt of 
tefense and explanation having fallen on Mr. Flagler, Mr. 
rew and Mr. Waring. Two or three times the convention 
rangled to the point of explosion, and one important refiner, 

[107] 



THE HISTORY OF THE STANDARD OIL COMPANY 

M. N. Allen, who was also the editor of the Titusville 
Courier, one of the best papers in the region, took his hat 
and left. Before the end of the convention the supporters of 
combination ought to have felt, if they did not, that they 
had been a little too eager in pressing an alliance on the Oil 
Regions so soon after outraging its moral sentiment. 

The press and people were making it plain enough, indeed, 
that they did not trust the persuasive advocates of reform. 
On every street corner and on every railroad train men reck- 
oned the percentage of interest the stockholders of the South 
Improvement Company would have in the new combination. 
It was too great. But what stirred the Oil Region most deeply 
was its conviction that the rebate system was regarded as the 
keystone of the new plan. "What are you going to do with the 
men who prefer to run their own business?" asked a repre- 
sentative of the Oil City Derrick of one of the advocates 
of the plan. "Go through them," was reported to be his 
laconic reply. "But how?" "By the co-operation of transporta- 
tion" — that is, by rebates. Now the Oil Region had been too 
recently convicted of the sin of the rebate, and had taken too 
firm a determination to uproot the iniquitous practice to be 
willing to ally itself with any combination which it suspected 
of accepting privileges which its neighbours could not get or 
would not take. 

At the very time the association of refiners was under con- 
sideration an attempt was made to win over the producers by 
offering, through their union, to buy all their oil at five dollars 
a barrel for five years. Oil was four dollars at the time. The pro- 
ducers refused. Such an agreement could only be kept, they said, 
by an association which was an absolute monopoly, fixing prices 
of refined to satisfy its own greed. All they wanted of the pro- 
ducer was to be a party to their conspiracy. When they had 
destroyed his moral force and completed their monopoly they 
.would pay him what they pleased for oil, and the price would 

[108] 



"AN UNHOLY ALLIANCE" 

not be five dollars! What could he do then? He would be 

P their slave, there would be no other buyer — could be none, 
since they would control the entire transportation system. 
The upshot of the negotiations was that again the advocates 
of combination had to retire from the Oil Regions defeated. 
"Sic semper tyrannis, sic transit gloria South Improvement 
Company," sneered the Oil City Derrick, which was given 
to sprinkling Latin phrases into its forceful and picturesque 
English. But the Derrick underrated both the man and the 
principle at which it sneered. A great idea was at work in the 
commercial world. It had come to them saddled with crime. 
They now saw nothing in it but the crime. The man who had 
brought it to them was not only endowed with far vision, he 
was endowed with an indomitable purpose. He meant to con- 
trol the oil business. By one manoeuvre, and that a discredited 
one, he had obtained control of one-fifth of the entire refining 
output of the United States. He meant to secure the other 
four-fifths. He might retire now, but the Oil Region would 
hear of him again. It did. Three months later, in August, 1872, 
it was learned that the scheme of consolidation which had 
been presented in vain at Titusville in May had been quietly 
carried out, that four-fifths of the refining interest of the 
United States, including many of the creek refiners, had 
gone into a National Refiners' Association, of which Mr. 
Rockefeller was president, and one of their own men, J. J. 
Vandergrift, was vice-president. The news aroused much 
resentment in the Oil Regions. The region was no longer solid 
in its free-trade sentiment, no longer undividedly true to its 
vow that the rebate system as applied to the oil trade must 
end. There was an enemy at home. The hard words which 
for months men had heaped on the distant heads of Cleveland 
and Pittsburg refiners, they began to pour out, more dis- 
creetly to be sure, on the heads of their neighbours. It boded 
ill for the interior peace of the Oil Regions. 

[ 109] 



THE HISTORY OF THE STANDARD OIL COMPANY 

The news that the refiners had actually consolidated aroused 
something more than resentment. The producers generally 
were alarmed. If the aggregation succeeded they would have 
one buyer only for their product, and there was not a man 
of them who believed that this buyer would ever pay them a 
v cent more than, necessary for their oil. Their alarm aroused 
them to energy. The association which had scattered the South 
Improvement Company was revived, and began at once to 
consider what it could do to prevent the consolidated refiners 
getting the upper hand in the business. 

The association which now prepared to contest the mastery 
of the oil business with Mr. Rockefeller and those who had 
joined him was a curious and a remarkable body. Its member- 
ship, drawn from the length and breadth of the Oil Regions, 
included men whose production was thousands of barrels a 
day and men who were pumping scarcely ten barrels; it 
included college-bred men who had come from the East with 
comfortable sums to invest, and men who signed their names 
with an effort, had never read a book in their lives, and whose 
first wells they had themselves "kicked down." There were 
producers in it who had made and lost a half-dozen fortunes, 
and who were, apparently, just as buoyant and hopeful as 
when they began. There were those who had never put down 
a dry well, and were still unsatisfied. However diverse their 
fortunes, their breeding, and their luck, there was no differ- 
ence in the spirit which animated them now. 

The president of the association was Captain William Has- 
son, a young man both by his knowledge of the Oil Regions 
and the oil business well fitted for the position. Captain Has- 
son was one of the few men in the association who had been 
in the country before the discovery of oil. His father had 
bought, in the fifties, part of the grant of land at the mouth 
of Oil Creek, made in 1796 to the Indian chief Cornplanter, 
and had moved on it with his family. Four years after the 

[no] 




M. N. ALLEN 

Independent refiner of Titusville. Editor of the 
Courier, an able opponent of the South Improve- 
ment Company. 




JOHN FERTIG 

Prominent oil operator. Until 1893 active in Pro- 
ducers' and Refiners' Company (independent). 





CAPT. WILLIAM HASSON 

President of the Petroleum Producers' Association 
of 1872. 



JOHN L. MC KINNEY 

Prominent oil operator. Until 1889 an independent. 
Now member of the Standard Oil Company. 



I 



"AN UNHOLY ALLIANCE" 

discovery of oil he and his partner disposed of 300 acres 
of the tract they owned for $750,000. Young Hasson had seen 

I^ornplanter, as the site of his father's farm was called, become 
)il City; he had seen the mill, blacksmith shop and country 
avern give way to a thriving town of several thousand inhab- 
tants. All of his interests and his pride were wrapped up 
n the industry which had grown up about him. Independent 
in spirit, vigorous in speech, generous and just in character, 
William Hasson had been thoroughly aroused by the assault 
of the South Improvement Company, and under his presi- 
dency the producers had conducted their successful campaign. 
The knowledge that the same man who had been active in 
that scheme had now organised a national association had con- 
vinced Captain Hasson of the necessity of a counter move, 
and he threw himself energetically into an effort to persuade 
the»oil producers to devise an intelligent and practical plan 
for controlling their end of the business, and then stand by 
what they decided on. 

Captain Hasson and those who were working with him 
would have had a much more difficult task in arousing the 
producers to action if it had not been for the general dissatis- 

( faction over the price of oil. The average price of crude in 
the month of August, 1872, was $3.47^. The year before it 
had been $4.42^, and that was considered a poverty price. 
It was pretty certain that prices would fall still lower, that 
"three-dollar oil" was near at hand. Everybody declared three 
dollars was not a "living price" for oil, that it cost more than 
that to produce it. The average yield of the wells in the Oil 
Region in 1872 was five barrels a day. Now a well cost at 
that time from $2,500 to $8,000, exclusive of the price of the 

«ease. It cost eight to ten dollars a day to pump a well, exclu- 
ive of the royalty interest — that is, the proportion of the pro- 
kduction turned over to the land-owner, usually one-fourth.* If 
* Estimate given in the Oil City Derrick for September 10, 1872. 
Cm] 



THE HISTORY OF THE STANDARD OIL COMPANY 

a man had big wells, and many of them, he made big profits on 
"three-dollar oil," but there were comparatively few "big 
producers." The majority of those in the business had but few 
wells, and these yielded only small amounts. 

If he had been contented to economise and to accept small 
gains, even the small producer could live on a much lower 
price than three dollars ; but nobody in the Oil Regions in 1872 
looked with favour on economy, and everybody despised small 
y things.-The oil men as a class had been brought up to enormous 
profits, and held an entirely false standard of values. As the 
Derrick told them once in a sensible editorial, "their busi- 
ness was born in a balloon going up, and spent all its early 
years in the sky." They had seen nothing but the extreme of 
fortune. One hundred per cent, per annum on an investment 
was in their judgment only a fair profit. If their oil property 
had not paid for itself entirely in six months, and begun to 
yield a good percentage, they were inclined to think it a fail- 
ure. Now nothing but five-dollar oil would do this, so great 
were the risks in business ; and so it was for five-dollar oil, re- 
gardless of the laws of supply and demand, that they struggled. 
They were notoriously extravagant in the management of their 
business. Rarely did an oil man write a letter if he could help 
it. He used the telegraph instead. Whole sets of drilling tools 
were sometimes sent by express. It was no uncommon thing 
to see near a derrick broken tools which could easily have 
been mended, but which the owner had replaced by new ones. 
It was anything to save bother with him. Frequently wells 
were abandoned which might have been pumped on a small 
but sure profit In those days there were men who looked on 
a ten-barrel (net) well as hardly worth taking care of. And 
yet even at fifty cents a barrel such a well would have paid the 
owner $1,800 a year. The simple fact was that the profits 
which men in trades all over the country were glad enough to 
get, the oil producer despised.yThe one great thing which 

[112] 



"AN UNHOLY ALLIANCE" 

the Oil Regions did not understand in 1872 was economy. 
As a matter of fact the oil-producing business was going 
through a stage in its natural development similar to oil refin- 
ing. Both, under the stimulus of the enormous profits in the 
years immediately following the discovery of oil, had been 
pushed until they had outstripped consumption. The compe- 
tition resulting from the inrush of producers and refiners and 
the economies which had been worked out were bringing 
down profits. The combinations attempted by both refiners' 
and producers in these years were really efforts to keep up 
prices to the extravagant point of the early speculative years.. 

Now the drop in the price of oil everybody recognised to 
be due to a natural cause. Where a year before the production 
had been 12,000 barrels a day, it was now 16,000. The demand 
for refined had not increased in proportion to this production 
of crude, and oil stocks had accumulated until the tanks of the 
region were threatening to overflow. And there was no sign 
of falling off. Under these circumstances it needed little argu- 
ment to convince the oil men that if they were to get a better 
price they must produce no more than the world would use. 
There was but one way to effect this — to put down no new 
wells until the stocks on hand were reduced and the daily 
production was brought down to a marketable amount. 

Under the direction of the Producers' Association an agita- 
tion at once began in favour of stopping the drill for six 
months. It was a drastic measure. There was hardly an oil 
operator in the entire region who had not on hand some piece 
of territory on which he was planning to drill, or on which 
he had not wells under way. Stopping the drill meant that 
all of the aggressive work of his business should cease for 
six months. It meant that his production, unreplenished, would 
gradually fall off, until at the end of the period he would have 
probably not over half of what he had now; that then he 
must begin over again to build up. It meant, too, that he was 

[113] 



THE HISTORY OF THE STANDARD OIL COMPANY 

at the mercy of neighbours who might refuse to join the 
movement, and who by continuing to drill would drain his 
territory. It seemed to him the only way of obtaining a 
manageable output of crude, however, and accordingly, when 
late in the month of August the following pledge to stop the 
drill was circulated, the great majority of the producers 
signed it: 

Whereas, The extreme low price of oil requires of producers that operations therefor 
shall cease for the present: Now we, the producers, land-owners and others, residents 
of the Pennsylvania Oil Region, do hereby bind ourselves to each other not to com- 
mence the drilling of any more wells for the period of six months from the first day 
of September next, not to lease any lands owned or controlled by us for the purpose 
of operations during the same period, and we also agree to use all honourable means 
to prevent others from boring. This we agree to, and bind ourselves to each other 
under a forfeiture of #2,000 for each well commenced by either of us within the period 
above limited — the same to be collected as any other debt. It is, however, under- 
stood by the undersigned that this forfeiture is not to apply to any wells where the 
erection of rigs is completed or under way, or that may be commenced before the 
first day of September aforesaid. 

The chief objection to this pledge came from land-owners 
in Clarion County. They were the "original settlers," plodding 
Dutch farmers, whose lives had always been poor and hard 
and shut-in. The finding of oil had made them rich and 
greedy. They were so ignorant that it was difficult to transact 
business of any nature with them. It was not unusual for a 
Clarion County farmer, if offered an eighth royalty, to refuse 
it on the ground that it was too little, and to ask a tenth. A 
story used to be current in the Oil Regions of a producer who, 
returning from an unsuccessful land hunt in Clarion County 
was asked why he had not secured a certain lease. "Well," he 
said, "farmers wanted seven-eighths of the oil as a royalty, 
wanted me to furnish barrels and to paint both heads. I agreed 
to everything but the last. I could afford to paint but one 
head, and so he wouldn't sign the lease." When the proposi- 

[114] 



"AN UNHOLY ALLIANCE" 

tion to stop the drill for six months was brought to these men, 
who at the time owned the richest territory in the oil field, no 
amount of explanation could make them understand it. They 
regarded it simply as a scheme to rob them, and would not 
sign. Outside of this district, however, the drill stopped over 
nearly all the field on the first of September. 

There was nothing but public opinion to hold the producers 
to their pledge. But public opinion in those days in the Oil 
Regions was fearless and active and asserted itself in the daily 
newspapers and in every meeting of the association. The whole 
body of oil men became a vigilance committee intent on keep- 
ing one another loyal to the pledge. Men who appeared at 
church on Sunday in silk hats, carrying gold-headed canes — 
there were such in the Oil Region in 1872 — now stole out at 
night to remote localities to hunt down rumours of drilling 
wells. If they found them true, their dignity did not prevent 
their cutting the tools loose or carrying off a band wheel. 

Stopping the drill afforded no immediate relief to the pro- 
ducers. It was for the future. And as soon as the Petroleum 
Producers' Association had the movement well under way, 
it proposed another drastic measure — a thirty days' shut-down 
— by which it was meant that all wells should cease pumping 
for a .month. Nothing shows better the compact organisation 
and the determination of the oil producers at this time than 
the immediate response they gave to this suggestion. In ten 
days scarcely a barrel of oil was being pumped from end to 
end of the Oil Regions. "That a business producing three 
million dollars a month, employing 10,000 labouring men 
and fifty million dollars of capital, should be entirely sus- 
pended, dried up, stopped still as death by a mutual volun- 
tary agreement, made and perfected by all parties interested, 
within a space of ten days — this is a statement that staggers 
belief — a spectacle that takes one's breath away," cried the 
Derrick, which was using all its wits to persuade the pro- 

[115] 



THE HISTORY OF THE STANDARD OIL COMPANY 

ducers to limit their production. It was certainly a spectacle 
which saddened the heart, however much one might applaud 
the grim resolution of the men who were carrying it out. The 
crowded oil farms where creaking walking-beams sawed the 
air from morning until night, where engines puffed, whistles 
screamed, great gas jets flared, teams came and went, and men 
hurried to and fro, became suddenly silent and desolate, and 
this desolation had an ugliness all its own — something unpar- 
alleled in any other industry of this country. The awkward 
derricks, staring cheap shanties, big tanks with miles and miles 
of pipe running hither and thither, the oil-soaked ground, 
blackened and ruined trees, terrible roads — all of the common 
features of the oil farm to which activity gave meaning and 
dignity — now became hideous in inactivity. Oil seemed a curse 
to many a man in those days as he stood by his silent wells 
and wondered what was to become of his business, of his 
family, in this clash of interests. 

While the producers were inaugurating these movements, 
Captain Hasson and a committee were busy making out the 
plan of the permanent association which was to control the 
business of oil-producing and prevent its becoming the slave 
of the refining interest. The knowledge that such an organisa- 
tion was being worked out kept the oil country in a ferment. 
In every district suggestions, practical and impractical, wise 
and foolish, occupied every producers' meeting and kept the 
idle oil men discussing from morning until night. At one 
mass-meeting the following resolution was actually passed 
by a body of revengeful producers: 

Resolved, that to give a wider market throughout the world to petroleum, to enhance 
its price and to protect producers from unjust combinations of home refiners, a com- 
mittee be appointed to ask the representatives of foreign governments at Washington 
to request their respective governments to put a proper tariff on refined oil and to 
admit crude oil free into the ports of their respective governments. 

Toward the end of October Captain Hasson presented the 

[116] 



"AN UNHOLY ALLIANCE" 

scheme which he and the committee had prepared. It pro- 
posed that there should be established what was called a 
Petroleum Producers' Agency.* This agency was really an 
incorporated company with a capital of one million dollars, 
the stock of which was to be subscribed to only by the pro- 
ducers or their friends. This agency was to purchase all the 
oil of the members of the association at at least five dollars a 
barrel. If stocks could be kept down so that the market took all 
of the oil at once, the full price was to be paid at once in cash ; 
if not, the agency was to store the oil in tanks it was to build, 
and a portion of the price was to be paid in tank certificates. 
By thus controlling all the oil, the agency expected to protect 
the weakest as well as the strongest producer, to equalise the 
interest of different localities, to prevent refiners and exporters 
from accumulating stocks, and to prevent gambling in oil. The 
agency was to take active means to collect reliable informa- 
tion about the oil business — the number of wells drilling, the 
actual production, the stocks on hand — things which had never 
been done to anybody's satisfaction. Indeed, one of the stand- 
ing causes for quarrels between the various newspapers of the 
region was their conflicting statistics about production and 
stocks. It was to make a study of the market and see what 
could be done to increase consumption. It was to oppose 
monopolies and encourage competition, and, if necessary, it 
was to provide co-operative refineries which the producers 
should own and control. 

The spirit of the agency, as explained by Captain Hasson, 
was most liberal, considering the interests of even the drillers 
and pumpers. "Advise every employee to take at least one 
share of stock for himself," he said in his address, "and one 
for his wife and each of his children, and encourage him 
to pay for it out of his saved earnings or out of his monthly 
pay. If he is not able to keep up his instalments, assure him 

*See Appendix, Number 16. "The Agency." 

["7] 



THE HISTORY OF THE STANDARD OIL COMPANY 

that you will help him, and then take care to do it. You 
will thus do him a double kindness, and benefit his family by 
encouraging habits of thrift and economy. You owe this much 
to him who so nobly seconded your efforts to gain control of 
the market by stopping work. You had all to gain, and he 
had nothing to hope for but your benefit. Now show your 
appreciation of his acts by this evidence of your regard for 
his welfare." 

The plan was received with general enthusiasm, and when 
it came up for adoption it went through with a veritable 
whoop. Indeed, within a few moments after its official 
acceptance, which took place in Oil City on October 24, 
$200,000 worth of stock was taken, and less than two weeks 
later it was announced that more than the desired million 
dollars had been subscribed, that the trustees and officers 
had been elected, and that the agency was ready for work. 
For the first time in the history of the oil business the pro- 
ducers were united in an organisation, which, if carried out, 
would regulate the production of oil to something like the 
demand for it, would prevent stocks from falling into the 
hands of speculators, and would provide a strong front to any 
combination with monopolistic tendencies. Only one thing 
was necessary now to make the producer a fitting opponent to 
his natural enemy, the refiner. That thing was loyalty to the 
agency he had established. The future of the producer at that 
moment was in his own hand. Would he stick? By every sign 
he would. He thought so himself. He had acted so resolutely 
and intelligently up to this point that even Mr. Rockefeller 
seems to have thought so. 

During the entire three months that the producers had been 
organising, the refiners had been making divers overtures to 
them. In August several of the refiners sought certain of the 
big producers and privately proposed a two-headed combina- 
tion which should handle the whole business, from drilling to 

[118] 



"AN UNHOLY ALLIANCE'* 

exportation. The proposition they made was most alluring to 
men suffering from low prices. "Carry out your plans to limit 
your production and guarantee to sell only to us," said Mr. 
Rockefeller's representative, "and we will give you four dol- 
lars a barrel for your oil. We will also establish a sliding scale, 
and for every cent a gallon that refined oil advances we will 
give you twenty-five cents more on your barrel of crude. The 
market price of crude oil, when this offer was made, was hover- 
ing around three dollars. "How," asked the producer, "can you 
do this?" "We expect, by means of our combination, to get a 
rebate of seventy- five cents a barrel," was the answer. "But the 
railroads have signed an agreement to give no rebates," ob- 
jected the producers. 

"As if the railroads ever kept an agreement," answered the 
worldly-wise refiners. "Somebody will get the rebates. It is 
the way the railroads do business. If it is to be anybody, we 
propose it shall be our combination." Now it was clear enough 
to the men approached that the great body of their associa- 
tion would never go into any scheme based on rebates, and 
they said so. The refiners saw no disadvantage in that fact. 
"We don't want all the producers. We only want the big ones. 
The small producer under our arrangement must die, as the 
small refiner must." The proposition never got beyond the 
conference chamber. It was too cynical. Several conferences 
of the same nature took place later between representatives 
of the two interests, but nothing came of them. The two asso- 
ciations were kept apart by the natural antagonism of their 
ideals and their policy. Captain Hasson and his followers were 
working on an organisation which aimed to protect the weak- 
est as well as the strongest; which welcomed everybody who 
cared to come into the business ; which encouraged competition 
and discountenanced any sort of special privilege. Mr. Rocke- 
feller and his associates proposed to save the strong and elimi- 
nate the weak, to limit the membership to those who came in 

[119] 



THE HISTORY OF THE STANDARD OIL COMPANY 

now, to prevent competition by securing exclusive privileges. 
Their program was cold-blooded, but it must be confessed that 
it showed a much firmer grasp on the commercial practices of 
the day, and a much deeper knowledge of human nature as 
it operates in business, than that of the producers. 

The formation of the Producers' Agency brought the refin- 
ers back to the Oil Regions in greater earnest than ever. The 
success of that organisation gave them an active antagonist, 
one which, as it held the raw material, could at any time 
actually shut up their refineries by withholding oil. The 
vigour, the ability, the determination the new organisation 
had displayed made it a serious threat to the domination Mr. 
Rockefeller and his associates had dreamed. It must be pla- 
cated. On November 8, immediately after it was announced 
that the entire million dollars' worth of stock was taken, an 
agent of the Standard Oil Company in Oil City was ordered to 
buy oil from the agency — 6,000 barrels of oil at $4.75 a barrel 
— and the order was followed by this telegram from Mr. 
Rockefeller: 

"It has been represented to us that if we would buy of the producers' agent at 
Oil City and pay #4. 75 per barrel, they would maintain the price. We are willing 
to go farther and buy only of the producers' agent, hence the order we have given 
you. See Hasson and others and let there be a fair understanding on this point. W e 
will do all in our power to maintain prices, and continue to buy, provided our position 
is fully understood. We do this to convince producers of our sincerity, and to assist 
in establishing the market." 

A more adroit move could not have been made at this 
moment. This purchase was a demonstration that the Refiners' 
Association could and would pay the price the producers 
asked; that they asked nothing better, in fact, than to ally 
themselves with the agency. The events of the next three 
weeks, on the contrary, showed the agency that it would be 
some time before anybody else would pay them any such 

[ 120] 






"AN UNHOLY ALLIANCE" 

price as that Mr. Rockefeller promised. The reason was evi- 
dent enough. In spite of the stopping of the drill, in spite of 
the thirty days' shut-down, production was increasing. Indeed, 
the runs * for November were greater than they had ever 
been in any single month since the beginning of the oil busi- 
ness. A large number of wells under way when the drill was 
stopped had "come in big." New territory had been opened 
up by unexpected wildcats. The shut-down had done less than 
was expected to decrease stocks. It was evident that the Pro- 
ducers' Association had a long and severe task before it to 
bring the crude output down to anything like the demand. 
Could the great body of producers be depended upon to take 
still further measures to lesson their production, and at the 
same time would they hold their oil until the agency had the 
mastery of the situation? Their tanks were overflowing. Many 
of them were in debt and depending on their sales to meet 
their obligations — even to meet their daily personal expenses. 
It was little wonder that they grew restive as they began to 
realise that the agency in which they had seen immediate 
salvation from all their ills could only be made effective by 
months more of self-sacrifice, of agitation, of persistent effort 
from every man of them. With every day they became more 
impatient of the bonds the agency had set for them, and the 
leaders soon realised that some immediate tangible results must 
be given the mass of oil men, or there was danger of a 
stampede. 

A strong feature of the genius of John D. Rockefeller has 
always been his recognition of the critical moment for action 
in complicated situations. He saw it now, and his representa- 
tives again came to the creek seeking an alliance. Their argu- 
ments, as they found their way from the private meetings into 

* The amount of production was computed from the oil run through the pipe-lines, 
all of which had their gaugers and were supposed to report their runs at regular in- 
tervals. 

[121] 



THE HISTORY OF THE STANDARD OIL COMPANY 

the press and the street, ran something like this: "Our com- 
bination is the only big buyer. We are in the thing to stay, 
and shall remain the only big buyer. You might erect refin- 
eries and oppose us, but it would take months, and while you 
are waiting how are you going to hold the producers? You 
cannot do it. We can easily get all the oil we want to-day at 
our own price from the men who sell from necessity, and yet 
your agency is in the first flush of enthusiasm. Sell only to us 
and we will buy 15,000 barrels a day from you. Refuse an 
alliance with us and you will fail." 

Overwhelmed by the length and severity of the struggle 
before them if they insisted on independence, fearful lest the 
scattered and restless producers could not be held much 
longer, convinced by their confident arguments that the refin- 
ers could keep their promise, the council finally agreed to 
a plan of union which the Derrick dubbed the "Treaty of 
Titusville." A terrible hubbub followed the announcement 
that a treaty was proposed and would probably be adopted 
by the association. The same old arguments which had greeted 
each overture from the refiners were gone over again. It 
would be a monopoly. The price they offered for crude 
depended upon their getting an unnaturally high price for 
refined. The markets of the world would refuse to pay this 
price when it was discovered that it was kept up by an agree- 
ment which was contrary to the laws of supply and demand. 
And, besides, the parties could not trust each other. "Timeo 
Danaos et dona ferentes. Liberal translation — Mind your eye 
when the Cleveland refiners get generous," cautioned the 
Derrick. As always, the ghost of the South Improvement 
Company was between them. On the other hand, it was argued 
that it was Hobson's choice, "combine or bust," there is no 
other market. We cannot wait for one. We have a million 
barrels of oil on hand — the refiners will take 15,000 bar- 
rels a day for "spot cash." And after all, concluded the 

[ 122] 




JAMES S. TARR 

Owner of the "Tarr Farm," one of the richest oil 
territories on Oil Creek. 




WILLIAM BARNSDALL 

The second oil well on Oil Creek was put down by 
Mr. Barnsdall. 





JAMES S. MCCRAY 
Owner of the McCray Farm near Petroleum Centre. 



WILLIAM A. ABBOTT 

One of the most prominent of the early oil producers, 
refiners and pipe-line operators 



1 



I 



"AN UNHOLY ALLIANCE" 

"philosophical," if you can't do as well as you want to, do the 
best you can. 

On December 12 the proposed treaty was laid before 
the producers at Oil City. It aroused a debate so acrimonious 
that even the Derrick suppressed it. Captain Hasson led the 
opposition. In his judgment there was but one course for the 
producers — to keep themselves free from all entanglements 
and give themselves time to build up solidly the structure they 
had planned. If they had followed his advice the whole his- 
tory of the Oil Regions would have been different. But they 
did not follow it. The treaty was ratified by a vote of twenty- 
seven to seven. The excitement and the personalities the associ- 
ation indulged in at their meeting augured ill for its future, 
but when a week later a committee sent to see the refiners came 
back from New York with a contract signed by Mr. Rocke^ 
feller,* the president, and bearing with them an order for 
200,000 barrels of oil at $3.25, there was a general feeling 
that, after all, an alliance might not be so bad a thing. 
200,000 barrels was a big order and would do much to 
relieve their distress. Their formal sense was quieted, too, 
by the assurance that the producers before signing the con- 
tract had insisted that the Refiners' Combination enter into 
an agreement to take no rebates as long as the alliance 
lasted. The main points of the agreement decided upon were, 
that the Refiners' Association should admit all existing refiners 
to its society, and the Producers' Association all producers 
present and to come — that the former company should buy 
only of the latter, the latter sell only to the former, and that 
the agency should bind all producers enjoying its privileges 
to handle their oil through it. The refiners were to buy such 

Iaily quantities as the markets of the world would take and 
t a price governed by the price of refined, five dollars per bar- 
*See Appendix, Number 17. Contract between Petroleum Producers' Association 
id Petroleum Refiners' Association. 
[123] 



THE HISTORY OF THE STANDARD OIL COMPANY 

rel when refined was selling at twenty-six cents a gallon. 
Either association could discontinue the agreement on ten 
days' notice. The producers, before signing the contract, in- 
sisted that the Refiners' Combination sign an agreement to take 
no rebates as long as the alliance lasted. This agreement in 
regard to rebates read as follows: 

"Whereas, it is deemed desirable to execute a contract of even date herewith 
between the Petroleum Producers' Association and the Petroleum Refiners' Association 
for the purpose of securing a co-operation for mutual protection, it is agreed by the 
Refiners' Association that sections one and three of a contract made the 25th of 
March, 1872, between certain trunk lines of railroads and a committee of producers 
and refiners shall be and remain in full force. 

"Petroleum Refiners' Association, 

"John D. Rockefeller, President** 

The sections of the contract of the 25th of March referred 
to agreed that no rebates or contracts or other arrangements 
should be made which would give any party the slightest 
difference in rates, and that the rates should not be changed 
either for increase or decrease without first giving Mr. Hasson, 
the president of the Producers' Union, at least ninety days' 
notice in writing. As we now know, Mr. Rockefeller himself 
was receiving rebates when he signed this agreement. 

And now, at last, after five months of incessant work, the 
agency was ready to begin disposing of oil. They set to work 
diligently at once to apportion the 200,000 barrels the re- 
finers had bought among the different districts. It was a 
slow and irritating task, for a method of apportionment and of 
gathering had to be devised, and, as was to be expected, it 
aroused more or less dissatisfaction and many charges of 
favouritism. The agency had the work well under way, how- 
ever, and had shipped about 50,000 barrels when, on January 
14, it was suddenly announced that the refiners had refused 
to take any more of the contract oil! 

There was a hurried call of the Producers' Council and a 

[124] 



"AN UNHOLY ALLIANCE" 

demand for an explanation. A plausible one was ready from 
Mr. Rockefeller. "You have not kept your part of the con- 
tract — you have not limited the supply of oil* — there is more 
being pumped to-day than ever before in the history of the re- 
gion. We can buy all we want at $2.50, and oil has sold within 
the week at two dollars. If you will not, or cannot, stop over- 
production, can you expect us to pay your price? We keep 
down the output of refined, and so keep up the price. If you 
will not do the same, you must not expect high prices." 

What could the producers reply? In spite of their heroic 
measures, they had not been able to curtail their output. It 
seemed as if Nature, outraged that her generosity should be 
so manipulated as to benefit only the few, had opened her 
veins to flood the earth with oil, so that all men might know 
that here was a light cheap enough for the poorest of them. 
Her lavish outpouring now swept away all of the artificial 
restraints the producers and refiners had been trying to build. 
The Producers' Association seemed suddenly to comprehend 
their folly in supposing that when 5,000 barrels more of 
oil was produced each day than the market demanded any 
combination could long keep the contract the refiners had 
made with them; and their unhappy session, made more 
unhappy by the reading of bitter and accusing letters from all 
over the discontented region, ended in a complete stampede 
from the refiners, the vote for dissolving the alliance having 
but one dissenting voice. 

There were few tears shed in the Oil Regions over the rup- 
ture of the contract. The greater part of the oil men had 
called it from the beginning an "unholy alliance," and 
rejoiced that it was a fiasco. If the alliance had been all that 
came to an end, the case would not have been so serious, but it 

*The agency was pledged by its constitution to limit the supply of crude, but this 
stipulation did not appear in the contract signed by the two associations. It was 
a verbal understanding. 

[125] 



THE HISTORY OF THE STANDARD OIL COMPANY 

was not. The breaking of the alliance proved the death of the 
agency and the association. The leaders who had disapproved 
of the treaty withdrew from active work; the supporters of the 
alliance, demoralised by its failure, were glad to keep quiet. 
A few spasmodic efforts to stop the drill, to inaugurate another 
shut-down, were made, but failed. Most of the producers felt 
that, as oil was so low, their only safety was in getting as 
large a production as they could, and a perfect fever of 
development followed. The Producers' Association, after ten 
months of as exciting and strenuous effort as an organisation 
has ever put in, was snuffed out almost in a day. It was to 
be five years before the oil men recovered sufficiently from the 
shock of this collapse to make another united effort. If Mr. 
Rockefeller felt in the fall of 1872 that the : 'good of the 
oil business" required the dissolution of the Producers' 
Agency, he could not have acted with more acumen than he 
did in leading them into an alliance, and at the psychological 
moment throwing up his contract. 

Humiliated as the producers were by their failure, they 
soon found consolation in the knowledge that the Refiners' 
Association was in trouble. A serious thing, in fact, had hap- 
pened. When the official report of the year's exports and 
imports came out, it was shown that the exports of refined oil 
had fallen off for the first time in the history of the business. 
In 1871, 132,178,843 gallons had been exported. In 1872, only 
118,259,832 were exported. Just as alarming was the proof 
that the shale and coal oil refineries of Europe had taken a 
fresh start — that they were selling their products more cheaply 
than kerosene could be imported and sold. There was a gen- 
eral outcry from all over the country that Mr. Rockefeller 
and his associates were running the oil business by keeping 
up the price of refined oil beyond what the price of crude 
justified. The producers, eager for a scape-goat, argued that 
the low price of crude was due to decreased consumption as 

[126] 



"AN UNHOLY ALLIANCE" 

well as over-production, and their ill-will against Mr. Rocke- 
feller flared up anew. In the meantime the Refiners' Associ- 
ation was having troubles of its own. The members were not 
limiting their output as they had agreed — that is, it was dis- 
covered every now and therrthat a refinery was making more 
oil than Mr. Rockefeller had directed. Again, what was more 
fatal to the success of the association, members sometimes sold 
at a lower price than that set by Mr. Rockefeller. These 
restrictions were fundamental to the success of the combina- 
tion, and the members were called together at Saratoga in 
June, 1873, and after a long session the association was 
dissolved. 

There was loud exultation in the unthinking part of the 
Oil Regions over the dissolution of the refiners. The "Junior 
Anaconda" was dead. The wiser part of the region did not 
exult. They knew that though the combination might dis- 
solve, the Standard Oil Company of Cleveland still controlled 
its one-fifth of the capacity of the country; that not only had 
Mr. Rockefeller been able to hold the twenty refineries he 
had bolted so summarily at the opening of 1872, but he had 
assimilated them so thoroughly that he was making enormous 
profits. Mr. Rockefeller's contracts with the Central Rail- 
road alone in 1873 an d ^74 obliged him for seven months 
of the year to ship at least 100,000 barrels of refined oil a 
month to the seaboard. As a matter of fact he never shipped 
less than 108,000 barrels, and in one month of the period it 
rose to 180,000.* Now in 1873 he made, at the very lowest 
figure, three cents a gallon on his oil. Estimating his ship- 
ments simply at 700,000 barrels a year — and they were much 
more — his profits for that year were $1,050,000, and this ac- 
counts for no profits on about thirty-five per cent, of the Stand- 
ard output, which was sold locally or shipped Westward. 

* Testimony of H. M. Flagler before the Ohio State Commission for investigating 
railroad freight discrimination, March, 1879. See Appendix, Number 14. 

[127] 



THE HISTORY OF THE STANDARD OIL COMPANY 

Little wonder that the Cleveland refiners who had been snuffed 
out the year before, and who saw their plants run at such 
advantage, grew bitter, or that gossip said the daily mail of 
the president of the Standard Oil Company was enlivened by 
so many threats of revenge that he took extraordinary precau- 
tions about appearing unguarded in public. 

It is worth noticing that these great profits were not being 
used for private purposes. In 1872 the Standard Oil Company 
paid a dividend of thirty-seven per cent, but in 1873 they cut 
it to fifteen per cent. The profits were going almost solidly 
into the extension and solidification of the business. Mr. j 
Rockefeller was building great barrel factories, thus cutting 
down to the minimum one of a refiner's heaviest expenses. He 
was buying tank cars that he might be independent of the 
vagaries of the railroads in allotting cars. He was gaining 
control of terminal facilities in New York. He was putting his 
plants into the most perfect condition, introducing every 
improved process which would cheapen his manufacturing 
by the smallest fraction of a cent. He was diligently hunting 
methods to get a larger percentage of profit from crude oil. 
There was, perhaps, ten per cent, of waste at that period in 
crude oil. It hurt him to see it unused, and no man had a 
heartier welcome from the president of the Standard Oil 
Company than he who would show him how to utilise any 
proportion of his residuum. In short, Mr. Rockefeller was 
strengthening his line at every point, and to no part of it was 
he giving closer attention than to transportation. 



[128] 



CHAPTER FIVE 
LAYING THE FOUNDATIONS OF A TRUST 

VIDENCE OF REAPPEARANCE OF REBATES SOON AFTER AGREEMENT OF 
MARCH 25 IS SIGNED — PRINCIPLE THOROUGHLY ESTABLISHED THAT 
LARGE SHIPPERS SHALL HAVE ADVANTAGES OVER SMALL SHIPPERS 
IN SPITE OF RAILROADS' DUTY AS COMMON CARRIERS— AGREEMENT 
WORKED OUT BY WHICH THREE ROADS ARE TO HAVE FIXED PERCENT- 
AGE OF EASTERN SHIPMENTS— OIL REGIONS ROBBED OF THEIR GEO- 
GRAPHICAL ADVANTAGE— THE RUTTER CIRCULAR— ROCKEFELLER NOW 
SECRETLY PLANS REALISATION OF HIS DREAM OF PERSONAL CONTROL 
OF THE REFINING OF OIL — ORGANISATION OF THE CENTRAL ASSO- 
CIATION— H. H. ROGERS' DEFENCE OF THE PLAN— ROCKEFELLER'S QUIET 
AND SUCCESSFUL CANVASS FOR ALLIANCES WITH REFINERS— THE REBATE 
HIS WEAPON— CONSOLIDATION BY PERSUASION OR FORCE— MORE TALK 
OF A UNITED EFFORT TO COUNTERACT THE MOVEMENT. 

THROUGHOUT 1872, while the producers and 
refiners were working out associations and alliances 
to regulate the output of crude and refined oil, 
the freight rates over the three great oil-carrying 
roads were publicly supposed to be those settled by the 
agreement of March 25. Except by the sophisticated it was 
believed that the railroads were keeping their, contracts. 
The Lake Shore and Michigan Southern and the New York 
Central had never kept them, as we have seen. Mr. Flagler's 
statement that the Standard received a rebate of twenty-five 
cents a barrel from April 1 to November 15, 1872, would 
seem to show that while with one hand Mr. Clark and Mr. 
Vanderbilt signed the agreement with the oil men that hence- 
forth freights should be "on a basis of perfect equality to all 
I [1*9] 



THE HISTORY OF THE STANDARD OIL COMPANY 

shippers, producers and refiners, and that no rebates, draw- 
backs, or other arrangements of any character should be made 
or allowed that would give any party the slightest difference 
in rates or discriminations of any character whatever," with 
the other they had signed an arrangement to give a twenty-five- 
cent rebate to Mr. Rockefeller! They certainly had a strong 
incentive for ignoring their pledge. Consider what Mr. Rocke- 
feller could offer the road — sixty car-loads of oil a day, over 
4,000 barrels. General Devereux points out in the affidavit 
already mentioned * wjiat this meant. It permitted them to 
make up a solid oil train and run it out every day. By running 
nothing else they reduced the average time of a freight car 
from Cleveland to New York and return from thirty days to 
ten days. The investment for cars to handle their freight 
was reduced by this arrangement to about one-third what it 
would have been if several different persons were shipping 
the same amount every day. Promptness was insured in for- 
warding and returning (a drawback of from fifty dollars to 
$150 a day accrued if it was late, so that the Standard was 
bound to ship promptly), and all the inconvenience of dealing 
with many shippers each with his peculiar whim or demand 
was avoided. It was certainly worth a rebate to the Central, 
and the Central not having any prejudices in favour of keep- 
ing agreements because they were agreements naturally con- 
ceded what Mr. Rockefeller wanted. There was another point. 
If the Central did not concede to Mr. Rockefeller's terms 
it undoubtedly would lose the freight. There was the lake and 
the canal and there was the Erie! 

Now it is not supposable that such an arrangement would 
go on long without leaking out in the upper oil circles. We 
have evidence that it did not. Indeed, there was among cer- 
tain intelligent oil men a conviction when the agreement was 
signed that the New York roads would not regard it — that 

*See Appendix, Number 3. 
[ I30] 



LAYING THE FOUNDATIONS OF A TRUST 

if they did it would ruin the refining business of Cleveland. 
W. T. Scheide, a member of the oil men's committee making 
this contract, the agent of one of the largest oil shippers in 
the country, Adnah Neyhart, in some frank and suggestive 
testimony given to the Hepburn Committee in 1879, said that 
at the time the arrangement was made he did not think any- 
body connected with the business expected it would last. "My 
reason for that was that it was an impossible agreement," said 
Mr. Scheide. "The immediate effect of it would have been 
to have utterly destroyed fifty-five per cent, of the refining 
interest of the country; that is to say, Cleveland and Pitts- 
burg, which during the previous four years had shipped fifty- 
five per cent, of all the oil out of the Oil Regions — they, in 
addition to paying the rates of freights which all other refiners 
would have had to pay, were required to pay fifty cents a 
barrel on their crude oil to their works." The refiners in 
Cleveland and Pittsburg had of course always paid to get 
crude oil to their works, even the South Improvement Com- 
pany tariffs provided for that, and under that arrangement 
Cleveland had come to be in 1871 the chief refining centre 
of the country. The chairman of the committee examining 
Mr. Scheide suggested it was a "temporary impossibility 
which would have adjusted itself," which Mr. Scheide 
admitted. " Yes, sir, naturally, it would have adjusted it- 
self I suppose, but the effect was very marked at the 
time." 

So strong was Mr. Scheide's conviction that the New York 
roads would not stand the new rates that on the 10th of April 
he went to the Pennsylvania railroad and asked for a rebate 
on Mr. Neyhart's crude shipments — and got it. What the 
rebate was he does not state, but Mr. Flagler tells us in his 
testimony * that in December he discovered that the Penn- 
sylvania was shipping for as low as $1.05 a barrel. And for 

* See Appendix, Number 14. 

[131] 



THE HISTORY OF THE STANDARD OIL COMPANY 

one month he got from Mr. Vanderbilt a rate of $1.05 on his 
4,000 barrels a day. 

Mr. Scheide was also shipping refined oil over the Erie. 
George R. Blanchard, who in October, 1872, became the 
general freight agent of the Erie, told the Hepburn Com- 
mittee in 1879 that he found on entering his position that 
$7,000 in rebates had been paid Mr. Scheide for Mr. Ney- 
hart in the month of September, 1872, on this refined. He 
does not say how long this had been going on. Mr. Blanchard 
found at the same time the March 25 agreement. He asked 
why it was not observed, and the reply convinced him that 
it had not been kept more than two weeks by the Pennsylvania 
and Central systems. "The representations made to me," says 
Mr. Blanchard, "also convinced the Atlantic and Great West- 
ern as to what our rivals were doing, and that railway com- 
pany and our own decided to continue to pay the twenty-four 
cents per barrel drawback then being paid on the rate of 
$1.35, provided by their producers' agreement of March 25, 
1872." 

But Mr. Blanchard was shipping only Mr. Neyhart's re- 
fined, and naturally he looked for more business and was will- 
ing to give a rebate to get it. He soon had some from another 
of the oil men who had signed the agreement of March 
25. This was Mr. Bennett, of Titusville, who with J. D. 
Archbold and his other partners entered into a contract with 
Mr. Blanchard to ship their entire product for a year at a rate 
considerably below the one agreed upon on March 25.* The 
contract was a short-lived one, for in November Mr. Bennett 
and his partners turned their shipments over to the Pennsyl- 
vania. The Erie had some compensation, however, in the fact 
that in July, 1873, Mr - Neyhart's crude shipments had all 
come to them. Mr. Scheide, Mr. Neyhart's agent, explained 

* See Appendix, Number 18. Testimony of George R. Blanchard on rebates 
granted by the Erie Railroad. 

[ 132] 



LAYING THE FOUNDATIONS OF A TRUST 

to the Hepburn Commission that he left the Pennsylvania 
because of what he considered "very bad treatment — a dis- 
crimination against us in furnishing us cars." The Pennsyl- 
vania had indeed undertaken to carry out the clause in the 
agreement of March 25 which stipulated that there should be 
no discrimination in furnishing cars. Mr. Scheide, considering 
himself "their shipper," that is, shipping larger quantities 
more regularly than anybody else, and as a consequence hav- 
ing better rates, thought it unfair that the cars should be 
pro rated,* and left the road, giving his business to the Erie, 
where presumably he got assurances that cars would be fur- 
nished to shippers according to the quantity and regularity 
of shipments. Mr. Scheide's excellent testimony is good 
evidence of how deep a hold the principle that the large 
shippers are to have all the advantages had taken hold of some 
of the best men in the oil country, although the oil country 
as a whole utterly repudiated the "rebate business." These 
details, all drawn from sworn testimony, show how, before a 
year had passed after the end of the Oil War, all the roads 
were practising discrimination, how a few shippers were again 
engaged in a scramble for advantages, and how the big ship- 
pers were bent on re-establishing the principle supposed to 
have been overthrown by the Oil War that one shipper is more 
convenient and profitable for a road than many, and this being 
so, the matter of a road's duty as a common carrier has nothing 
to do with the question. f 

This was the situation when 'in June, 1873, General Deve- 
reux, whom we have met on the Lake Shore road,) became 
president of the Atlantic and Great Western. Now at this 
time Peter H. Watson, the president of the South Improve- 

*See Appendix, Number 19. Testimony of W. T. Scheide. 

fSee Appendix, Number 20. Statements of amounts paid for overcharges and 
rebates on oil during the year 1873 by the New York, Lake Erie and Western 
Railroad. 

[133] 



THE HISTORY OF THE STANDARD OIL COMPANY 

ment Company, was president of the Erie. The two at once 
looked into the condition of their joint oil traffic. They found 
the rebate system abolished a year before again well 
intrenched. Nevertheless the Erie was not doing much busi- 
ness. The entire shipments of oil over the Erie for 1873 were 
but 762,000 barrels out of a total of 4,963,000. Naturally they 
went to work to build up a trade, and their relations being 
what they had been with the Standard, the company con- 
trolling a third of the country's refining capacity, they went 
to them to see if they could not get a percentage of their 
seaboard shipments from Cleveland. Mr. Rockefeller was 
willing to give them shipments if they would make the rates 
as low as were given to any of his competitors on any of 
the roads, and if they would deliver his oil at Hunter's Point, 
Brooklyn, where he had oil yards, and where the Central 
delivered, or if they would not do that if they would lease their 
own oil yards to him. There was an excellent business reason 
for making that latter demand, which Mr. Blanchard ex- 
plained to the Hepburn Commission : 

"The Standard," said Mr. Blanchard, "had a force of men, 
real estate, houses, tanks and other facilities at Hunter's Point 
for receiving and coopering the oil ; and they had their cooper- 
age materials delivered over there. The arrangement prior 
to that time was that the Erie Company performed this ser- 
vice for its outside refiners at Weehawken, for which the Eri< 
Company made specific charges and added them to their rates 
for freight. The Standard Company said to us: 'We do the 
business at low cost at Hunter's Point because we are expert! 
oil men and know how to handle it; we pay nobody a profit, 
and cannot and ought not to pay you a profit for a service that 
is not transportation any more than inspecting flour or cotton; 
and the New York Central delivers our oil at that point. Now 
if you will deliver our oil at Hunter's Point and permit us to 
do this business, you may do so; we want to do that business, 

[134] 



LAYING THE FOUNDATIONS OF A TRUST 

and we cannot pay to the Erie Railway Company at Wee- 
hawken a profit on all of those staves, heads, cooperage, fill- 
ing, refilling and inspection, for we have our own forces of 
men and our own yards necessary for this work in another 
part of the harbour of New York; and it is not a part of your 
business as a carrier, anyway.' 

"In lieu thereof and for the profits that we could have 
made from the aggregate of these charges, we said to them: 
( If you will pay us a fixed profit upon each one of these barrels 
of oil arriving here, you may take the yards and run them 
subject to certain limitations as to what you shall do for other 
people who continue to ship oil to the same yards.' They were 
only able to make this arrangement with us because of their 
controlling such a large percentage of shipment, and because 
of permanent facilities in Brooklyn; if the larger percentage 
of shipments had belonged to outside parties, and they had 
had no yards of their own, we would probably have retained 
the yards ourselves." 

A contract was signed on April 17, 1874. By it the Standard 
agreed to ship fifty per cent, of the products of its refineries 
by the Erie at rates "no higher than is paid by the competitors 
of the Standard Oil Company from competing Western refin- 
eries to New York by all rail lines," and to give all oil patrons 
of the Erie system a uniform price and fair and equal facili- 
ties at the Weehawken yards.* It was a very wise business deal 
for both parties. It made Mr. Rockefeller the favoured shipper 
of a second trunk line (the Central system was already his) 
and it gave him the control of that road's oil terminal so that \ 
he could know exactly what other oil patrons of the road were / 
doing — one of the advantages the South Improvement contract I 
looked out for, it will be remembered. As for the Erie, it tied" 
up to them an important trade and again put them into a 

*See Appendix, Number 21. Agreement of 1874 between the Erie Railroad system 
and the Standard Oil Company. 

[135] 



THE HISTORY OF THE STANDARD OIL COMPANY 

position to have something to say about the division of the 
oil traffic, the bulk of which outside of the Standard Oil 
Company the Pennsylvania was handling. In connection with 
the Central the Erie now said to the Pennsylvania that hence- 
forth they proposed to maintain their position as oil shippers. 

The natural result of the determination of the Central and 
Erie to get from the Pennsylvania a percentage of its freight 
was, of course, increased cutting, and it looked as if a rate 
war was inevitable. At this juncture Colonel Potts of the Em- 
pire Transportation Company, handling all of the Pennsyl- 
vania freight, suggested to his rivals that it would be a 
favourable time for the three trunk lines to pool their sea- 
board oil freight. In the discussions of this proposition, which, 
of course, involved a new schedule of rates, there being now 
practically none, it was suggested that henceforth freights be 
so adjusted that they would be equal to all refiners, on crude 
and refined from all points. Such an equalisation seems at first 
glance an unsolvable puzzle. The agents found it intricate 
enough. Throughout the summer of 1874 they worked on it, 
holding meetings at Long Branch and Saratoga and calling 
into their counsels a few of the leading refiners, pipe-line men 
and producers whom they could trust to keep quiet about 
the project. 

By the first of September they had an agreement worked 
out by which each of the three roads was to have a fixed per- 
centage of Eastern shipments. The rates to the seaboard were 
to amount to the same for all refiners wherever located. That 
is, to use one of the illustrations employed by Mr. Blanchard 
in explaining the scheme to the Hepburn Commission: "Sup- 
pose 100 barrels of refined oil to have been sent from Cleveland 
to New York by rail; the consignee was required to first pay 
freight therefor at New York upon delivery $1.90; to make 
this quantity of refined oil at that time, he had already paid 
freight on say 133^ barrels of crude oil from the pipes to 

[136] 




|3 



LAYING THE FOUNDATIONS OF A TRUST 

Cleveland at thirty-five cents per barrel or say $46.67; he 
had therefore paid out from the pipes to the refinery and 
thence to New York by transportation only, on 100 barrels 
refined and the quantity of crude oil required to make it, 
$236.67 or $2.37 per barrel ; therefore, at the end of the month 
we refunded the $46.67 already paid on the crude oil. So that 
the rate paid net was $1.90 to him and all other refiners." ^ 

In case of the refineries situated at the seaboard the cost 
of carrying from the Oil Regions the 133^2 barrels of crude 
oil required to make 100 barrels of refined was made exactly 
the same as carrying the 100 barrels of refined made in 
the West and transported East. This really amounted to charg- 
ing nothing for getting the crude oil to a refinery wherever 
it was situated, as the following clause in the agreement 
shows: "The roads transporting the refined oil shall refund 
to the refiners as a drawback the charges paid by them upon 
the crude oil reaching their refineries by rail." This para- 
graph provided for this crude rebate contained a second 
clause, which read: "And the roads transporting through 
crude oil to the Eastern seaboard shall refund to the ship- 
pers twenty-two cents per barrel; both of said drawbacks 
to be paid only on oil reaching the initial points of rail 
shipment, through pipes, the owners of which maintain 
agreed rates of pipage." The paragraph announced two new 
and startling intentions on the part of the oil-carrying roads : 
first, that they intended to strip the Oil Regions of the advan- 
tage of geographical position at the wells by sending oil free 
to Cleveland and Pittsburg, New York and Philadelphia, at 
the same time leaving these cities the advantages accruing 
from their position as manufacturing centres and close to 
domestic markets; second, that they had entered into a com- 
bination with certain pipe-lines to drive certain others out 
of existence. 

Mr. Blanchard gave the reasons of these two revolutionary 

[ 137] 



THE HISTORY OF THE STANDARD OIL COMPANY 

moves to the Hepburn Committee. It was "urgently repre- 
sented to the trunk lines," he said, "by some refiners at the 
West as well as by others at the seaboard, and also by crude 
shippers and receivers and by owners of pipe-lines, that it 
was in every way desirable that the refiners of Cleveland and 
Pittsburg, and those at the seaboard be put upon a basis of 
equalisation in the gross rates of transportation to and from 
the refineries." Now to do this the element of distance had 
to be disregarded. Cleveland was 150 miles west of the Oil 
Regions, but she must be treated as if she were at the same 
distance from the seaboard. As soon as the proposition was 
made, certain of the refiners and producers objected unless the 
railroads went further and equalised rates on coal, acids, 
cooperage, etc. This, however, the roads declined to do. 

As for the second clause — the rebate on all oil coming from 
pipes which kept up a fixed pipage — it came about in this 
way. While the railroad men were in conference at Long 
Branch, Henry Harley, the president of the Pennsylvania 
Transportation Company, came to them and said that he 
believed the scheme of equalisation could not be carried out 
unless some kind of an alliance was made with the pipe-lines. 
There had been a large increase in the number of pipes in 
the four or five years preceding, and a situation had arisen 
not unlike that in every other branch of the oil business. There 
was perhaps twice the pipe capacity needed for gathering all! 
the oil produced, and as the pipes were under at least a dozeni 
different managements, each fighting for business, the result! 
was, of course, just what it had been on the railroads and: 
in the markets — severe cutting of prices, rebates, special se-J 
cret arrangements, confusion and loss. It had been only nine| 
years since the first pipe-line had been a success, and consider-^ 
ing the phenomenal growth of the business and the important 
part the pipe played in it, it was of course a situation natural; 
enough. Like the overgrowth of refining and of production, il 

[138] 



LAYING THE FOUNDATIONS OF A TRUST 

was something only time and solidification of business could 
remedy. 

Mr. Harley laid the situation before the railroad men and 
said to them : "We want you to help us keep up an even and 
equal pipage rate. Here we are representatives of the nine 
most important lines in the Oil Regions. We want to put 
a stop to cutting and keep up a rate of thirty cents. Can't 
you help us?" Now up to this time the railroad had had 
nothing to do with pipe-line charges. It was, and still is, 
the custom for the buyer of the oil to pay the pipage, that 
is, the oil producer on running the oil into the pipe-line 
received a credit certificate for the oil. If he held it in the 
line long he paid a storage charge. When he sold the oil, 
the line ran it, and the buyer paid the charge for running. 
Now the United Pipe Lines proposed to the railroads a 
through rate from the wells to the seaboard as low as they 
currently made from the receiving points on the railway, the 
pipes to get twenty per cent, of this through rate. The rail- 
roads were to agree not to receive oil from buyers except at 
as high a rate as the pipes charged; and to allow no pipe-line 
outside of the alliance a through rate from the wells. The 
memorandum said squarely that the intent and purpose of this 
was to make the United Pipes the sole feeders of the railroads. 
It was a plan not unlike the South Improvement Company 
in design — to put everybody but yourself out of business, and 
it had the merit of stating its intent and purpose with perfect 
candour.* 

The railroad men seem not to have objected to the purpose, 
only to the terms of the proposed arrangement. Mr. Blanchard 
told the pipe committee that he regarded it as the most violent 
attempt on the part of the tail to wag the dog that he had 
ever seen, and the representatives of the other roads agreed. 

* See Appendix, Number 22. Agreement of 1874 between the railroads and pipe- 
lines. 

[139] 



THE HISTORY OF THE STANDARD OIL COMPANY 

They saw at once, however, how much more solid their own 
position would be if they could be sure that no pipe-line deliv- 
ering to them would cut its rate, if there could be in effect a 
through rate from the wells, and after some discussion they 
proposed to the pipe-lines to add twenty-two cents a barrel 
to the rail charges ; that is, if the rate to the seaboard was $1.25, 
to collect from the shipper $1.47, and in case he could show 
that he had taken his oil from one of the United Pipes to give 
him a rebate of twenty-two cents. Mr. Blanchard said that 
they proposed to do this until proof was had that the associ- 
ated pipe-lines were acting in good faith. Of course this 
arrangement did not change the pipe-lines' methods of collect- 
ing in the least. It simply forced a uniform charge, and this 
charge was to be, it should be noticed, regardless of distance. 
The charge for collecting and delivering oil was to be thirty 
cents a barrel whether it was carried one or ten miles — a 
practice which prevails to-day. 

While these negotiations were going on, the Oil Regions 
as a whole was troubled by a vague rumour that freight rates 
were to be advanced. In the two years since the Oil War the 
region, as a whole, had adjusted itself to the tariff schedule 
of March 25, 1872, and was doing very well though working 
on a very much smaller margin of profits than ever before. 
The margin was sufficient, however, to keep the refineries in 
the valley running most of the time, and several of the large 
ones were increasing their plants. Detailed accounts of the 
condition of the works are to be had in the newspapers of the 
day. Thus, in the summer of 1874 an editor of the Oil City 
Derrick made a tour of the creek refineries and reported 
all of the larger ones in Titusville and Oil City as prosperous 
and growing, and the small ones in the little towns between 
these two points as "jogging along pleasantly." The keen com- 
petition between the different refining points made it neces- 
sary to do business with economy, and a rumour of a raise of 

[140] 



LAYING THE FOUNDATIONS OF A TRUST 

freight rates naturally was looked on with dread. It was not 
until September 12, however, that the new arrangements 
were made known, and this was some time earlier than was 
intended. The slip came about in this way. The general 
freight agent of the New York Central road, James H. 
Rutter, sent out on September 9 a private circular announc- 
ing the new arrangement,* an advance of fifty cents a barrel 
on refined oil shipped to the seaboard, no corresponding 
advance for Cleveland and Pittsburg, a rebate of the cost of 
getting oil to the refineries and a rebate of twenty-two cents to 
those who patronised certain pipe-lines. And to this new 
schedule was appended this consoling paragraph : "You will 
observe that under this system the rate is even and fair to all 
parties, preventing one locality taking advantage of its neigh- 
bour by reason of some alleged or real facility it may possess. 
Oil refiners and shippers have asked the roads from time to 
time to make all rates even and they would be satisfied. This 
scheme does it and we trust will work satisfactorily to all." 
Among the refiners to whom the circular went was M. N. 
Allen of Titusville. Now Mr. Allen was the editor of an 
aggressive and lively newspaper — the Courier. He had fought 
rings and deals from the beginning of his career as a refiner 
and as an editor. He had been one of the strong opponents 
of the South Improvement Company and of the Refiners' 
Association which followed, and he saw at once the cloven 
foot in the Rutter circular and hastened to denounce it in a 
strong editorial: 

If by an agreement of the New York Central, the Erie, and the Pennsylvania 
Railway Companies, crude oil — delivered from the Titusville pipe — should be hauled 
from Titusville to Chicago, and there refined, and the refined product then hauled to 
New York, all at two dollars a barrel, for the refined thus carried, it would be placing, 
by the railway companies, Chicago refiners upon the same level with the Titusville 
refiners who, on and after October I, shall ship to New York refined made from 

* See Appendix, Number 23. The Rutter circular. 

[hi] 



THE HISTORY OF THE STANDARD OIL COMPANY 

crude oil taken from the Titusville pipe. The new freight arrangement does not make 
such provision for refiners at Chicago. But a Cleveland refiner may come to Titusville 
and buy oil for delivery from the Titusville, the Pennsylvania, the Church Run, or the 
Octave pipes, at this point, take it to Cleveland, and, after refining, carry the product 
to the seaboard at the same expense of freight, all told, that a refiner here, taking his 
crude oil directly from the above pipes, would have in placing his refined oil at the 
seaboard. This is stating the matter exactly, and we see no necessity for comment 
hereupon. 

Again, 1,000 barrels of crude oil are to be carried to the seaboard for the same amount 
of money that will be required for carrying there 715 barrels of refined, notwithstanding 
that crude oil is a much more hazardous article of freight, from fire, than refined. If 
this is not a very large discrimination in favour of seaboard refiners, for which there 
is no compensation given to refiners in the Oil Region, our perceptions are utterly weak. 

Now, before putting into effect this new freight arrangement, it may be well for the 
railway officials having the matter in charge to take into consideration a certain 
little article of agreement, which the people of Pennsylvania, on the 16th day of 
December last, entered into among themselves, respecting railroads in this state. In 
Article 17, Section 7, of our new constitution is the following decree of the sovereign 
people of this commonwealth: "No discrimination in charges or facilities for trans- 
portation shall be made between transportation companies and individuals, or in 
favour of either, by abatement, drawback or otherwise." 

Petroleum is a product of this state, and transportation companies in taking it 
away must respect the fundamental law of the state. And, while we ask for no favours, 
always supporting free trade from principle, speaking in behalf of the refining interests 
of the Oil Region, we do not propose quietly to submit to any discrimination by trans- 
portation companies, doing business in the state, against our interests. If by reason 
of our position we possess advantages for refining oil here, over refiners outside, we 
have strong objections against the action of the railway companies in taking from us 
such advantages, by requiring us to pay for hauling a given quantity of oil as much 
as they require of Cleveland refiners for hauling the same amount of oil 300 
miles greater distance; or for requiring us to pay as much for hauling 715 barrels of 
refined oil as they require for hauling 1,000 barrels of crude oil the same distance. 
If the railroad companies will make all expenses of refining oil equal to all points, 
we shall be satisfied. If they will make the price of sulphuric acid i| cents a pound, 
the same as it is in New York, instead of i\ cents; if they will deliver caustic soda 
here free of freight from New York; if they will put paints and glues here at the same 
prices as those articles sell for in New York; if they will put staves and heading and 
hoops for barrels here at the same figures those articles cost in Cleveland, whether 
they do all these by giving us rebates sufficient to cover all differences now against us, 
or in any other way that will bring the same results, we will accept the new arrange- 

[142] 



LAYING THE FOUNDATIONS OF A TRUST 

ment without complaint. Until this shall be done we shall ask the railway companies 
in hauling oil to confine themselves to legitimate business, and to obey the new consti- 
tution, in letter and spirit. It will behoove our citizens to see that their new constitu- 
tion is carefully respected. 

We are opposed to the new arrangement for the large advance in the price of freight 
upon oil. If the railroad companies have lost money in carrying oil for the Cleveland 
refineries during several years past, let not the whole petroleum interest, in its depressed 
condition, be required to sustain the penalty. We submit to the railway managers 
whether it is not right to charge for hauling goods in proportion to the distance hauled, 
allowing a small discount, perhaps, upon the rate per mile for the greater distance. 

Our remarks upon this subject may have the colour of assurance, but, from the 
large majority given last winter in favour of the new constitution of this state, we have 
great confidence that the people will not part with their sovereign rights, nor allow 
themselves to be ruled by King Pool. 

At first the Oil Region was puzzled by the Rutter circular. 
It certainly was plausible. Was it not true that every man 
shared equally under it? As the days passed, the dazed mental 
condition into which it had thrown the oil men cleared up. 
Mr. Allen's editorials began to take effect. The pipe-lines left 
out of the pool began to ask how it could be legal that the 
railroads should enter into an arrangement which obviously 
would drive them out of business. The creek refiners began 
to ask by what right the advantage of geographical position at 
the wells should be taken from them, and Cleveland be 
allowed to retain the advantages of her proximity to the 
Western market; Pittsburg her position on the Ohio River 
and the market it commanded; all of the cities the advantage 
of their proximity to great local markets and to such neces- 
sary supplies as barrels and acids. Besides, was it constitu- 
tional for the railroads thus to regulate interstate commerce? 
Was not the arrangement, as far as the Pennsylvania was 
concerned, plainly prohibited by the new constitution of the 
state of Pennsylvania? The producers slowly began to realise, 
too, that the Rutter circular, like the South Improvement 
charter and contracts, did not recognise them as a body. The 

[143] 



THE HISTORY OF THE STANDARD OIL COMPANY 

contract of March 25, 1872, provided that the rates fixed 
should not be "liable to any change either for increase or 
decrease without first giving to William Hasson, president of 
the Producers' Union, at Oil City, at least ninety days' notice 
in writing of such contemplated change." This agreement 
was totally ignored. It was an "insolent equalisation," the oil 
men concluded, and the sum total of their dissatisfaction 
finally found expression at a mass-meeting at Parker's Land- 
ing, on October 2. Directly after this meeting a committee ap- 
pointed sent to Messrs. Scott, Vanderbilt and Jewett, the new 
president of the Erie, letters calling their attention to the Rut- 
ter circular, and stating the objections of the producers to it. 
These letters sent on October 6 received no attention from 
any of the railroad presidents addressed for over three weeks, 
when the following was received from the Pennsylvania : 

Gentlemen: — Your communication of the 6th inst., to Thomas A. Scott, president, 
was received, and has been referred to me. 

In establishing the recent rates and arrangements for the transportation of oil, the 
object which was at all times kept in view was to place all interests on an equality, 
giving to no one an undue advantage over any other. 

We believe that this object has been accomplished, and that by adhering to our 
present rates the interests both of the producers, refiners and transporters will be 
promoted. 

Very truly yours, 

A. J. Cassatt 



T. 



"Brief, tardy and unsatisfactory," was the Derrick's ch 
acterisation of Mr. Cassatt's letter. It was evidence to the 
oil men that if anything was to be done to break the new 
tariff it would have to be done in court, for the railroads 
meant to stand by their creation. 

In this discussion of the Rutter circular Mr. Rockefeller's 
name scarcely appeared. It was known that he had been 
admitted to the conferences at which the tariff was arranged. 
This was taken as a matter of course. There was nothing 

[144] 



LAYING THE FOUNDATIONS OF A TRUST 

which concerned the oil business which John Rockefeller was 
not on the inside of. Mr. Blanchard later stated that the 
'crude equivalent" scheme was suggested by certain Western 
refiners. The tremendous advantage Cleveland secured by 
the new arrangement, practically 300 miles of free transporta- 
tion, seemed to prove, too, that Mr. Rockefeller had not been 
inactive during the conference. Whether he had or had not 
suggested the points in the "Rutter circular" so advantageous 
to his interests, he used them now to aid him in accomplishing 
one of the shrewdest and most far-reaching moves of his life 
—the move which was to lead at last to the realisation of his 
Great Purpose — the concentration of the oil business in his 
own hands. For Mr. Rockefeller, quiet as he had been since 
the breaking up of the Refiners' Association in the summer of 
1873, had by no means given up the idea of doing for the 
refining interest of the whole country what he had done for 
that of Cleveland through the South Improvement Company. 
Mr. Rockefeller has shown repeatedly in his conquering 
business career remarkable ability to learn from experience. 
The breaking up of the Refiners' Association may have seemed 
a disaster to him. He did not allow it to be a profitless disaster. 
He extracted useful lessons from the experience, and, armed 
with this new wisdom, bent his whole mind to working out 
a third plan of campaign. He now knew that he could not 
hope to make again so rich a haul as he had made through the 
defunct South Improvement scheme. The experience of the 
past year with the refiners convinced him that it would take 
time to educate them to his idea of combination; but he had 
learned who of them were capable of this education. As for 
:he producers, the alliance attempted with them was enough 
to demonstrate that they would never endure long the re- 
straints of any association. Besides, the bulk of them still held 
the, to him, unpractical belief that rebates were wrong. Mr. 
Rockefeller had also re-learned in these eighteen months 

[145] 



THE HISTORY OF THE STANDARD OIL COMPANY 

what he knew pretty well before, that the promise to give or 
take away a heavy freight traffic was enough to persuade any 
railroad king of the day to break the most solemn compact. 

With all these reflections fresh in mind, Mr. Rockefeller 
again bent over a map of the refining interests of the United 
States. Here was the world he sighed to conquer. If we may 
suppose him to have begun his campaign as a great general 
with whom he has many traits in common — the First Napo- 
leon — used to begin his, by studding a map with red-headed 
pegs marking the points he must capture, Mr. Rockefeller's 
chart would have shown in and around Boston perhaps three 
pegs, representing a crude capacity of 3,500 barrels; in and 
around New York fifteen pegs, a capacity of 9,790 barrels; 
in and around Philadelphia twelve pegs, a capacity of 2,061 
barrels; in Pittsburg twenty-two pegs, a capacity of 6,090 
barrels; on the creek twenty-seven pegs, a capacity of 9,231 
barrels.* His work was to get control of this multitude of 1 
red pegs and to fly above them the flag of what the irreverent 
call the "holy blue barrel. " + 

Some time in the summer of 1874, after it had become cer- 
tain that Colonel Potts's plan for an equalisation of oil freights 
would be carried out, Mr. Rockefeller wrote to his former 
colleague in the South Improvement Company, W. G. War-j 
den, of Philadelphia, telling him he wanted to talk over; 
the condition of the oil business with him, and inviting him 
to bring Charles Lockhart, of Pittsburg, to that Mecca of 
American schemers, Saratoga, for a conference with him and 
Mr. Flagler. Mr. Warden hesitated. He had been much 
abused for his relation with the South Improvement Com- 
pany. He had seen the National Refiners' Association fail. 
He had begun to feel a distaste for combination. Besides, he 

* These figures are from Henry's " Early and Later History of Petroleum," pub- 
lished in 1873. 

t The barrels of the Standard Oil Company are painted blue. 

[146] 




GEORGE H. BISSELL 

Founder of the first oil company in the United 

States. 




JONATHAN WATSON 

One of the owners of the land on which the first 
successful well was drilled for oil. 





SAMUEL KIER 

The first petroleum refined and sold for lighting 
purpose was made by Mr. Kier in the '50s in Pitts- 
burg. 



JOSHUA MERRILL 

The chemist and refiner to whom many of the 
most important processes now in use in making 
illuminating and lubricating oils are due. 



V 



LAYING THE FOUNDATIONS OF A TRUST 

was doing very well in Philadelphia. However, after some 
hesitation, he and Mr. Lockhart went to Saratoga. The four 
gentlemen breakfasted together and later strolled out to a 
pavilion. Here they discussed again, as they had nearly three 
years before, when they prepared the South Improvement 
assault, the condition of the oil business. 

Mr. Rockefeller now had something besides a theory to 
present to the gentlemen he wished to go into his third scheme. 
He had the most persuasive of all arguments — an actual 
achievement. "Three years ago," he could tell them, "I took, 
over the Cleveland refineries. I have managed them so that 
to-day I pay a profit to nobody. I do my own buying, I make 
my own acid and barrels, I control the New York terminals 

both the Erie and Central roads, and ship such quantities 
that the railroads give me better rates than they do any other, 
shipper. In 1873 I shipped over 700,000 barrels by the Cen- 
tral, and my profit on my capitalisation, $2,500,000, was over 
$1,000,000. This is the result of combination in one city. The 
railroads now have arranged a new tariff, by which they mean 
to put us all on an equal footing. They say they will give 
no rebates to anyone, but if we can join with Cleveland the 
strongest forces in other great shipping points, and apply to 
them the same tactics I have employed, we shall become the 
largest shipper, and can demand a rebate in return for an 
equal division of our freight. We proved in 1 872-1 873 that 
we could not do anything by an open association. Let us 
who see what a combination strictly carried out will effect 
unite secretly to accomplish it. Let us become the nucleus of 
a private company which gradually shall acquire control of 
all refineries everywhere, become the only shippers, and conse- 
quently the master of the railroads in the matter of freight 
rates." It was six hours before the gentlemen in confer- 
ence left the pavilion, and when they came out Mr. War-" 
In and Mr. Lockhart had agreed to transfer their refineries 
[147] 



THE HISTORY OF THE STANDARD OIL COMPANY 

in Philadelphia and Pittsburg to the Standard Oil Company, 
of Cleveland, taking stock in exchange. They had also agreed 
to absorb, as rapidly as persuasion or other means could bring 
it about, the refineries in their neighbourhood. Their union 
with the Standard was to remain an absolute secret — the con- 
cerns operating under their respective names.* 

On October 15, 1874, Mr. Rockefeller consummated an- 
other purchase of as great importance. He bought the works 
of Charles Pratt and Company, of New York city. As before, 
the purchase was secret. The strategic importance of these 
purchases for one holding Mr. Rockefeller's vast ambition 
was enormous. It gave him as allies men who were among 
the most successful refiners, without doubt, in each of the 
three greatest refining centres of the country outside of Cleve- 
land, where he ruled, and of the creek, where he had learned 
that neither he nor any member of the South Improvement 
Company could do business with facility. To meet these pur- 
chases the stock of the Standard Oil Company was increased, 
on March 10, 1875, to $3, 500,000. t The value of the concern 
as a money-earner at this early date, 1874, is shown by the fact 
that Pratt and Company paid not less than 265 for the Standard 
stock they received in exchange for their works.t 

The first intimation that the Oil Region had that Mr. 
Rockefeller was pushing another combination was in March 
of 1875, when it was announced that an organisation of refin- 
ers, called the Central Association, of which he was president, 
had been formed. Its main points were that if a refiner would 
lease to the association his plant for a term of months he would 

* This account of the meeting at Saratoga was given to the writer by Charles 
Lockhart, of Pittsburg. 

t See Appendix, Number 24. Standard Oil Company's application for increase of 
capital stock to $3,500,000 in 1875. 

t See Appendix, Number 25. Henry M. Flagler's testimony on the union of the 
Standard Oil Company with outside refiners in 1874. 

[148] 



LAYING THE FOUNDATIONS OF A TRUST 

be allowed to subscribe for stock of the new company. The 
lease allowed the owner to do his own manufacturing, but 
gave Mr. Rockefeller's company "irrevocable authority" to 
make all purchases of crude oil and sales of refined, to decide 
how much each refinery should manufacture, and to negotiate 
for all freight and pipe-line expenses. The Central Associ- 
ation was a most clever device. It furnished the secret partners^ 
of Mr. Rockefeller a plausible proposition with which to 
approach the firms of which they wished to obtain control. 

Little as the Oil Regions knew of the real meaning of the 
Central Association, the news of its organisation raised a cry 
of monopoly, and the advocates of the new scheme felt called 
upon to defend it. The defense took the line that the condi- 
tions of the trade made such a combination of refineries 
necessary. Altogether the ablest explanation was that of 

IHL H. Rogers, of Charles Pratt and Company, to a reporter^ 
>f the New York Tribune : 
"There are five refining points in the country," said Mr. Rogers, " Pittsburg, Phila- 
elphia, Cleveland, the Oil Regions and New York city. Each of these has certain 
local advantages which may be briefly stated as follows: Pittsburg, cheap oil; Phila- 
delphia, the seaboard; Cleveland, cheap barrels, and canal as well as railroad trans- 
portation; the Oil Regions, crude oil at the lowest figure; and all the products of 
petroleum have the best market in New York city. The supply of oil is three or four 
times greater than the demand.* If the oil refineries were run to their full capacity, ^ 
the market would be overstocked. The business is not regular, but spasmodic. When 
the market is brisk and oil is in demand, all the oil interests are busy and enjoy a fair 
share of prosperity. At other times, the whole trade is affected by the dullness. It has 
been estimated that not less than twenty millions of dollars are invested in the oil 
business. It is therefore to the interest of every man who has put a dollar in it to have 
the trade protected and established on a permanent footing. Speculators have ruined 
the market. The brokers heretofore have been speculating upon the market with 
disastrous effects upon the trade, and this new order of things will force them to pursue 

J * Mr. Rogers is mistaken here. The production in 1874 was 10,926,945 barrels, 

the shipments 8,821,500, the stocks at the end of the year 3,705,639. In 1875, the 
year in which he is speaking, more oil was consumed than produced. 

[ 149] 



THE HISTORY OF THE STANDARD OIL COMPANY 

their legitimate calling, and realise their profits from their industry and perseverance. 
Two years ago an attempt was made to organise an oil refiners* association, but it 
was subsequently abandoned. There was no cohesion of interests, and agreements were 
not kept. The movement at the present time is a revival of the former idea, and, it 
is believed, has already secured fully nine-tenths of the oil refiners in the country 
in its favour. I do not believe there is any intention among the oil men to 'bull' the 
market: The endeavour is to equalise all around and protect the capital invested. 
If by common consent, in good faith, the refiners agree to reduce the quantities to an 
allotment for each, made in view of the supply and demand, and the capacity for 
production, the market can be regulated with a reasonable profit for all. The price 
of oil to-day is fifteen cents per gallon. The proposed allotment of business would 
probably advance the price to twenty cents. To make an artificial increase, with im- 
mense profits, would be recognised as speculative instead of legitimate, and the oil 
interests would suffer accordingly. Temporary capital would compete with permanent 
investment and ruin everything. The oil producers to-day are bankrupt. There have 
been more failures during the last five months than in five years previously. An organi- 
sation to protect the oil capital is imperatively needed. Oil to yield a fair profit should 
be sold for twenty-five cents per gallon. That price would protect every interest and 
cover every outlay for getting out the crude petroleum, transporting by railroad, refining 
and the incidental charges of handling, etc. The foreign markets will regulate the 
price to a great extent, because they are the greatest consumers. The people of China, 
Germany, and other foreign countries cannot afford to pay high prices. Kerosene oil 
is a luxury to them, and they do not receive sufficient compensation for their labour 
to enable them to use this oil at an extravagant price. The price, therefore, must be 
kept within reasonable limits." 

The Oil Regions refused flatly to accept this view of the 
situation. The world would not buy refined at twenty-five 
cents, they argued. "You injured the foreign market in 1872 
by putting up the price. Our only hope is in increasing con- 
sumption. The world is buying more oil to-day than ever 
before, because it is cheap. We must learn to accept small 
profits, as other industries do." "The formation of the Refiners' 
Association has thrust upon the trade an element of uncer- 
tainty that has unsettled all sound views as to the general out- 
look," said the Derrick. "The scope of the Association," 
wrote a Pittsburg critic, "is an attempt to control the refining 
of oil, with the ultimate purpose of advancing its price and 

[150] 



LAYING THE FOUNDATIONS OF A TRUST 

reaping a rich harvest in profits. This can only be done by 
reducing the production of refined oil, and this will in turn 
act on crude oil, making the stock so far in excess of the 
demand as to send it down to a lower figure than it has yet 
touched." / ' 

"The most important feature of this contract," said a "vet- 
eran refiner," "is perhaps that part which provides that the 
Executive Committee of the Central Association are to have 
the exclusive power to arrange with the railroads for the 
carrying of the crude and refined oil. It is intended by this 
provision to enable the Executive Committee to speak for the 
whole trade in securing special rates of freight, whereby inde- 
pendent shippers of crude oil, and such refiners as refuse to 
join the combination, and any new refining interest that may 
be started, may be driven out of the trade. The whole general 
purpose of the combination is to reap a large margin by 
depressing crude and raising the price of refined oil, and 
the chief means employed is the system of discrimination in 
railroad freights to the seaboard." 

"The veteran refiner" was right in his supposition that Mr. 
Rockefeller intended to use the enormous power his combina- 
tion gave him to get a special rate. As a matter of fact he had 
seen to that before the "veteran refiner" expressed his mind. 
It will be remembered that in April, 1874, Mr. Rockefeller 
had made a contract with the Erie by which he was to ship 
fifty per cent, of his refined oil over that road at a rate as low 
as any competing line gave any shipper and he was to have a 
lease of the Weehawken oil terminal. Now this contract 
remained in force until the first of March, 1875, when a new 
one was made with the Erie guaranteeing the road the same 
percentage of freight and giving the Standard a ten-per-cent. 
rebate on whatever open tariff should be fixed. This rebate 
Mr. Blanchard says was quite independent of what the Cen- 
tral might be giving the Standard. He says that one reason the" 

[151] 



THE HISTORY OF THE STANDARD OIL COMPANY 

Standard was given the rebate was that it was suspected the 
Pennsylvania was allowing the Empire Transportation Com- 
pany an even larger one. If true, this would not affect any 
refiner necessarily as the Empire was not a refiner in March, 
1875. The real reason, of course, was what Mr. Blanchard 
gives later — that by this rebate they kept the Standard trade, 
now greatly increased by the purchase of the outside works 
already mentioned, although it should be noticed the Erie 
officials knew nothing of the Standard having control of any 
other refinery than that of Charles Pratt and Company. 
The announcement of the Central Association put an alto- 
gether new feature on oil transportation. If this organisation 
succeeded, and the refiners in it claimed nine-tenths of the 
capacity of the country — it gave Mr. Rockefeller "irrevoca- 
ble authority" to negotiate freights. The Pennsylvania road 
^immediately felt the pressure. The oil they had carried for 
big firms like those of Charles Lockhart in Pittsburg and 
of Warden, Frew and Company in Philadelphia was in the 
hands of the Standard Oil Company, and Mr. Rockefeller 
asked a rebate of ten per cent, on open rates. The road de- 
murred. Colonel Potts objected strenuously. Three years 
later in a paper discussing this rebate and its consequences 
he said: 

"The rebate was a modest one, as was its recipient. Yet the railway Cassandras 
prophesied from it a multitude of evils — a gradual destruction of all other refiners 
and a gradual absorption of their property by the favourite, who, with this additional 
armament, would rapidly progress towards a control of all cars, all pipes, all pro- 
duction, and finally of the roads themselves. Their prophecies met but little faith 
or consideration. The Standard leaders themselves were especially active in discourag- 
ing any such radical purpose. Their little rebate was enough for them. Everybody 
else should prosper, as would be shortly seen. They needed no more refineries; they 
had already more than they could employ — why should they hunger after greater 
burdens ? It was the railroads they chiefly cared for, and next in their affections stood 
the 100 rival refineries. Such beneficent longings as still remained (and their bosoms 
overflowed with them) spread out their steady waves toward the poor producers 

[152] 



LAYING THE FOUNDATIONS OF A TRUST 

whom, not to be impious, they had always been ready to gather under their wings, 
yet they would not. 

"This unselfish language soothed all alarm into quiet slumbering. It resembles 
the gentle fanning of the vampire's wings, and it had the same end in view — the un- 
disturbed abstraction of the victim's blood." 

Colonel Potts's argument against the rebate — doubtless 
clothed in much less picturesque language in 1875 than his 
feelings stirred him to in 1878, for a good enough reason, too, 
as we shall see — failed to convince the Pennsylvania officials. 
They decided to yield to the Standard. Mr. Cassatt, then third 
vice-president of the road, in charge of transportation, said 
in 1879 that the rebate was given because they found the 
Standard was getting very strong, that they had the backing 
of the other roads, and that if the Pennsylvania wanted to 
retain its full share of business and at fair rates they must 
make arrangements to protect themselves. 

No one of the roads knew certainly what the others were 
doing for the Standard until October 1, 1875. The freight 
agents then met to discuss again the freight pool they had 
formed in 1874. I* nac * not been working with perfect satisfac- 
tion. The clause granting the rebate of twenty-two cents to 
the pipe-lines which sustained an agreed rate of pipage had 
been abandoned after about five months' experiment. It was 
thought to stimulate new pipes. The roads in making a new 
adjustment made no effort to regulate pipe-line tariffs. The 
"crude rebate" as it was called — carrying oil to a refinery^ 
for nothing — was left in force. At this meeting Mr. Blan- 
chard found that both of the Erie's big rivals were grant- 
ing the Standard a ten per cent, rebate. He also found that 
he was not getting fifty per cent, of the Standard's business as 
the contract called for — that the Standard controlled not only 
the Cleveland and New York works of which he knew, but 
large works in Pittsburg and Philadelphia.* r 

* See Appendix, Number 26. George R. Blanchard's testimony on the breaking 
up of the Pipe Pool of 1874. 

[153] 



THE HISTORY OF THE STANDARD OIL COMPANY 

Mr. Rockefeller was certainly now in an excellent condition 
to work out his plan of bringing under his own control all the 
refineries of the country. The Standard Oil Company owned 
in each of the great refining centres, New York, Pittsburg and 
Philadelphia, a large and aggressive plant run by the men 
who had built it up. These works were, so far as the public 
knew, still independent and their only relation that of the 
"Central Association." As a matter of fact they were the 
"Central Association." Not only had Mr. Rockefeller brought 
these powerful interests into his concern; he had secured for 
them a rebate of ten per cent, on a rate which should always 
be as low as any one of the roads gave any of his competitors. 
He had done away with middlemen, that is, he was "paying 
nobody a profit." He had undeniably a force wonderfully 
constructed for what he wanted to do and one made practi- 
cally impregnable as things were in the oil business then, by 
virtue of its special transportation rate. 

As soon as his new line was complete the work of acquiring 
all outside refineries began at each of the oil centres. Unques- 
tionably the acquisitions were made through persuasion when 

( this was possible. If the party approached refused to lease or 

sell, he was told firmly what Mr. Rockefeller had told the 
Cleveland refiners when he went to them in 1872 with the 
South Improvement contracts, that there was no hope for 
him; that a combination was in progress which was bound to 
work; and that those who stayed out would inevitably go to 

-the wall. Naturally the first fruits to fall into the hands of the 
new alliance were those refineries which were embarrassed 
or discouraged by the conditions which Mr. Rogers explains 
above. Take as an example the case of the Citizens' Oil Refin- 
ing Company of Pittsburg, as it was explained in 1888 to the 
House Committee on Manufactures in its trust investigation. 
A. H. Tack, a partner in the company, told the story:* 

* Condensed from Mr. Tack's testimony. 

[154] 



LAYING THE FOUNDATIONS OF A TRUST 

"We began in 1869 with a capacity of 1,000 barrels a day. At the start everything 
was couleur de rose, so much so that we put our works in splendid shape. We manufac- 
tured all the products. We even got it down to making wax, and using the very last 
residuum in the boilers. We got the works in magnificent order and used up everything. 
We began to feel the squeeze in 1872. We did not know what was the matter. Of course 
we were all affected the same way in Pennsylvania, and of course we commenced 
shifting about, and meeting together, and forming delegations, and going down to 
Philadelphia to see the Pennsylvania Railroad, meeting after meeting and delegation 
after delegation. We suspected there was something wrong, and told those men there 
was something wrong somewhere; that we felt, so far as position was concerned, we had 
the cheapest barrels, the cheapest labour, and the cheapest coal, and the route from 
the crude district was altogether in our favour. We had a railroad and a river to bring 
us our raw material. We had made our investment based on the seaboard routes, and 
we wanted the Pennsylvania Railroad to protect us. But none of our meetings or 
delegations ever amounted to anything. They were always repulsed in some way, put 
off, and we never got any satisfaction. The consequence was that in two or three years 
there was no margin or profit. In order to overcome that we commenced speculating, 
in the hope that there would be a change some time or other for the better. We did 
not like the idea of giving up the ship. Now, during these times the Standard Oil 
Company increased so perceptibly and so strong that we at once recognised it as the 
element. Instead of looking to the railroad I always looked to the Standard Oil Com- 
pany. In 1874 I went to see Rockefeller to find if we could make arrangements with 
him by which we could run a portion of our works. It was a very brief interview. He 
said there was no hope for us at all. He remarked this — I cannot give the exact quotation 
— 'There is no hope for us/ and probably he said, 'There is no hope for any of us'; 
but he says, 'The weakest must go first.' And we went.'* 

All over the country the refineries in the same condition as 
Mr. Tack's firm sold or leased. Those who felt the hard times 
and had any hope of weathering them resisted at first. With 
many of them the resistance was due simply to their love for 
their business and their unwillingness to share its control with 
outsiders. The thing which a man has begun, cared for, led 
to a healthy life, from which he has begun to gather fruit, 
which he knows he can make greater and richer, he loves as 
he does his life. It is one of the fruits of his life. He is jealous 
of it — wishes the honour of it, will not divide it with another. 
He can suffer heavily his own mistakes, learn from them, cor- 

[155] 



THE HISTORY OF THE STANDARD OIL COMPANY 
rect them. He can fight opposition, bear all — so long as the 
work is his. There were refiners in 1875 who loved their busi- 
ness in this way. Why one should love an oil refinery the 
outsider may not see ; but to the man who had begun with 
one still and had seen it grow by his own energy and intelli- 
gence to ten, who now sold 500 barrels a day where he once 
sold five, the refinery was the dearest spot on earth save his 
home. He walked with pride among its evil-smelling places, 
watched the processes with eagerness, experimented with joy 
and recounted triumphantly every improvement. To ask such 
a man to give up his refinery was to ask him to give up the 
_. thing which, after his family, meant most in life to him. 
To Mr. Rockefeller this feeling was a weak sentiment. To 
place love of independent work above love of profits was as 
incomprehensible to him as a refusal to accept a rebate because 
it was wrong! Where persuasion failed then, it was necessary, 
in his judgment, that pressure be applied — simply a pressure 
sufficient to demonstrate to these blind or recalcitrant individ- 
uals the impossibility of their long being able to do business 
independently. It was a pressure varied according to locality. 
Usually it took the form of cutting their market. The system 
of "predatory competition" was no invention of the Standard 
Oil Company. It had prevailed in the oil business from the \ 
start. Indeed, it was one of the evils Mr. Rockefeller claimed 
his combination would cure, but until now it had been used 
spasmodically. Mr. Rockefeller never did anything spasmod- 
ically. He applied underselling for destroying his rivals' mar- 
ket with the same deliberation and persistency that character- 
ised all his efforts-, and in the long run he always won. There 
were other forms of pressure. Sometimes the independents 
found it impossible to get oil; again, they were obliged to 
wait days for cars to ship in; there seemed to be no end to the 
ways of making it hard for men to do business, of discourag- 
ing therjn until they would sell or lease, and always at the 

[156] 



LAYING THE FOUNDATIONS OF A TRUST 

psychological moment a purchaser was at their side. Take as 
an example the case of the Harkness refinery in Philadelphia, 
a story told to the same committee as that of Mr. Tack: 

"I was the originator of the enterprise," said William W. Harkness, "believing 
that there was no better place than Philadelphia to refine oil, particularly for export. 
We commenced then, as near as I can now recollect, about 1870, and we made money 
up to probably 1874. We managed our business very close and did not speculate in 
oil. We bought and we sold, and we paid a great deal of attention to the statistical 
part of our business so as to save waste, and we did a nice business. But we found 
in some years that probably five months out of a year we could not sell our oil unless 
it would be at a positive loss, and then we stopped. Then when we could sell our oil, 
we found a difficulty about getting cars. My brother would complain of it, but I 
believed that the time would come when that wcluld be equalised. I had no idea of 
the iniquity that was going on; I could not conceive it. I went on in good faith until 
*■) about 1874, and then the trouble commenced. We could not get our oil and were 
compelled to sell at a loss. Then Warden, Frew and Company formed some kind of 
running arrangement where they supplied the crude, and we seemed to get' along 
a little better. After a while the business got complicated, and I got tired and handed 
it over to my brother; I backed out. That was about 1875. I was dissatisfied and wanted 
to do an independent business, or else I wanted to give it up. In 1876 — I recollect 
that very well, because it was the year of the Centennial Exposition — we were at the 
Centennial Exposition. I was sitting in front of the great Corliss engine, admiring 
it, and he told me there was a good opportunity to get out. Warden, Frew and Com- 
pany, he said, were prepared to buy us out, and I asked him whether he considered that 
as the best thing to do; whether we had riot better hold on and fight it through, for 
I believed that these difficulties would not continue; that we would get our oil. I 
knew he was a competent refiner, and I wanted to continue business, but he said he 
thought he had better make this arrangement, and I consented, and we sold out; 
we got our investment back." * 

Here we have a refiner discouraged by the conditions which * 
Mr. Rockefeller claims his aggregation will cure. Under the 
Rutter circular and the discrimination in freight to the Stand- 
ard which followed, his difficulty in getting oil increases, and ' 
he consents to a running arrangement with Mr. Rockefeller's 
partner in Philadelphia, but he wants to do an "independent 

* Condensed from Mr. Harkness's testimony. 

[157] > 



THE HISTORY OF THE STANDARD OIL COMPANY 

business." Impossible. As he sits watching the smooth and 
terrible power of that famous Corliss engine of 1876, an 
engine which showed to thousands for the first time what 
great power properly directed means, he realised that some- 
thing very like it was at work in the oil business — something 
resistless, silent, perfect in its might — and he sold out to that 
something. Everywhere men did the same. The history of oil 
refining on Oil Creek from 1875 to 1879 is almost uncanny. 
There were at the beginning of that period twenty-seven plants 
in the region, most of which were in a fair condition, con- 
sidering the difficulties in the business. During 1873 the de- 
mand for refined oil had greatly increased, the exports nearly 
doubling over those of 1872. The average profit on refined 
that year in a well-managed refinery was not less than three 
cents a gallon. During the first half of 1874 the oil business 
had been depressed, but the oil refiners were looking for bet- 
ter times when the Rutter circular completely demoralised 
them by putting fifty cents extra freight charges on their 
shipments without an equivalent raise on competitive points. 
It was not only this extra charge, enough to cut off their 
profits, as business then stood, but it was that the same set 
of men who had thrown their business into confusion in 
1872 was again at work. The announcement of the Central 
Association with Mr. Rockefeller's name at its head confirmed 
their tears. Nevertheless at first none of the small refiners 
would listen to the proposition to sell or lease made them 
in the spring of 1875 by the representative first sent out by the 
Central Association. They would have nothing to do, they 
said bluntly, with any combination engineered by John D. 
Rockefeller. The representative withdrew and the case was 
considered. In the mean time conditions on the creek grew 
harder. All sorts of difficulties began to be strewn in their 
way — cars were hard to get, the markets they had built up 
were cut under them — a demoralising conviction was abroad 

[158] 



LAYING THE FOUNDATIONS OF A TRUST 

in the trade that this new and mysterious combination was 
going to succeed; that it was doing rapidly what its mem- 
bers were reported to be saying daily: "We mean to secure 
the entire refining business of the world." Such was the state 
of things on the creek when in the early fall of 1875 an 
energetic young refiner and oil buyer well known in the Oil 
Regions, J. D. Archbold, appeared in Titusville as the 
representative of a new company, the Acme Oil Company, 
a concern which everybody believed to be an offshoot of the 
Standard Oil Company of Cleveland, though nobody could 
prove it. As a matter of fact the Acme was capitalised and 
controlled entirely by Standard men, its stockholders being, 
in addition to Mr. Archbold, William Rockefeller, William 
G. Warden, Frank Q. Barstow, and Charles Pratt. It wa? 
evident at once that the Acme Oil Company had come into 
the Oil Regions for the purpose of absorbing the independent 
interests as Mr. Rockefeller and his colleagues were absorb- 
ing them elsewhere. The work was done with a promptness" 
and despatch which do great credit to the energy and 
resourcefulness of the engineer of the enterprise. In three 
years, by 1878, all but two of the refineries of Titusville had 
"retired from the business gloriously," as Mr. Archbold, 
flushed with victory, told the counsel of the Commonwealth 
of Pennsylvania in 1879, when the state authorities were try- 
ing to find what was at work in the oil interests to cause such 
a general collapse. Most of the concerns were bought out- 
right, the owners being convinced that it was impossible for 
them to do an independent business, and being unwilling to 
try combination. All down the creek the little refineries which 
for years had faced every difficulty with stout hearts col- 
lapsed. "Sold out," "dismantled," "shut down," is the melan- 
choly record of the industry during these four years. At the 
end practically nothing was left in the Oil Regions but the 
Acme of Titusville and the Imperial of Oil City, both of 

[159] 



THE HISTORY OF THE STANDARD OIL COMPANY 

them now under Standard management. To the oil men this 
sudden wiping out of the score of plants with which they 
had been familiar for years seemed a crime which nothing 
could justify. Their bitterness of heart was only intensified 
by the sight of the idle refiners thrown out of business by 
the sale of their factories. These men had, many of them, 
handsome sums to invest, but what were they to put them in? 
They were refiners, and they carried a pledge in their pockets 
not to go into that business for a period of ten years. Some 
of them tried the discouraged oil man's fatal resource, the 
market, and as a rule left their money there. One refiner who 
had, according to popular report, received $200,000 for his 
business, speculated the entire sum away in less than a year. 
Others tried new enterprises, but men of forty learn new 
trades with difficulty, and failure followed many of them. 
The scars left in the Oil Regions by the Standard Combination 
of 1 875-1 879 are too deep and ugly for men and women of 
this generation to forget them. 

In Pittsburg the same thing was happening. At the begin- 
ning of the work of absorption — 1874 — there were between 
twenty- two and thirty refineries in the town.* As we have 
seen, Lockhart and Frew sold to the Standard Oil Company 
of Cleveland some time in 1874. In the fall of that year a 
new company was formed in Pittsburg, called the Standard 
Oil Company of Pittsburg. Its president was Charles Lock- 
hart; its directors William Frew, David Bushnell, H. M. 
Flagler, and W. G. Warden — all members of the Standard 
Oil Company and four of them stockholders in the South Im- 
provement Company. This company at once began to lease or 
buy refineries. Many of the Pittsburg refiners made a valiant 
fight to get rates on their oil which would enable them to run 

* J. T. Henry, in his "Early and Later History of Petroleum," gives twenty-two; 
E. G. Patterson, in a list presented in court in 1880, gives the number at the 
beginning of this combination as thirty. 

[160] 



LAYING THE FOUNDATIONS OF A TRUST 

independently. To save expense they tried to bring oil from 
the oil fields by barge; the pipe-lines in the pool refused to 
run oil to barges, the railroad to accept oil brought down by 
barge. An independent pipe-line attempted to bring it to"~ 
Pittsburg, but to reach the works the pipe-line must run under 
a branch of the Pennsylvania railroad. It refused to permit 
this, and for months the oil from the line was hauled in wagons 
from the point where it had been held up, over the railroad 
track, and there repiped and carried to Pittsburg. At every" 
point they met interference until finally one by one they 
gave in. According to Mr. Frew, who in 1879 was examined 
as to the condition of things in Pittsburg, the company began 
to "acquire refiners" in 1875. In 1877 they bought their last 
one; and at the time Mr. Frew was under examination he 
could not remember but one refinery in operation in Pitts- 
burg not controlled by his company. 

Nor was it refiners only who sold out. All departments 
of the trade began to yield to the pressure. There was in the 
oil business a class of men known as shippers. They bought 
crude oil, sent it East, and sold it to refineries there. Among 
the largest of these was Adnah Neyhart, whose active repre-_ 
sentative was W. T. Scheide. Now to Mr. Rockefeller the 
independent shipper was an incubus ; he did a business which, - 

(in his judgment, a firm ought to do for itself, and reaped a 
profit which might go direct into the business. Besides, so 
long as there were shippers to supply crude to the Eastern 
refineries at living prices, so long these concerns might resist 
offers to sell or lease. 

Some time in the fall of 1872 Mr. Scheide began to lose 
his customers in New York. He found that they were making 

ime kind of a working arrangement with the Standard Oil 
ompany, just what he did not know. But at all events they 
) longer bought from him but from the Standard buyer, 
A. Bostwick and Company. At the same time he became con-^ 
[161] 



THE HISTORY OF THE STANDARD OIL COMPANY 
vinced that Mr. Rockefeller was after his business. "I knew 
that they were making some strenuous efforts to get our busi- 
ness," he told the Hepburn Commission in 1879, "because I 
used to meet Mr. Rockefeller in the Erie office." At the same 
time that he was facing the loss of customers and the demoral- 
ising conviction that the Standard Oil Company wanted his 
business, he was experiencing more or less disgust over busi- 
ness conditions in New York. "I did not like the character of 
my customers there," Mr. Scheide told the committee. "I did 
not think they were treating us fairly and squarely. There was 
a strong competition in handling oil. The competition had 
got to be so strong that 'outside refiners,' as they called them- 
selves then, used to go around bidding up the price of their | 
works on the Standard Oil Company, and they were using 
me to sell their refineries to the Standard. They would say I 
to refiners: 'Neyhart will do so and so, and we are going to 
continue running.' And they would say to us that the Stand- 
ard was offering lower prices. I recollect one instance in which j 
they, after having made a contract to buy oil from me if 
I would bring it over the Erie Railway, broke that con- j 
tract for the i-i28th part of a cent a gallon. I sold out the j 
_jiext week." When Mr. Scheide went to the freight agent of 
the Erie road, Mr. Blanchard, and told him of his decision to 
sell, Mr. Blanchard tried to dissuade him. During the conver- 
sation he let out a fact which must have convinced Mr. 
Scheide more fully than ever that he had been wise in deter- 
mining to give up his business. Mr. Blanchard told him as a 
reason for his staying and trusting to the Erie road to keep 
its contracts with him that the Standard Oil Company had 
been offering him five cents more a barrel than Mr. Scheide 
was paying them, and would take all their cars, and load them | 
all regularly if they would throw him over and give them ; 
— the business. It is interesting to note that when Mr. Scheide 
sold in the spring of 1875, lt was > as ne supposed, to Charles i 

[162] 



LAYING THE FOUNDATIONS OF A TRUST 

Pratt and Company. Well informed as he was in all the intri- 

^acies of the business — and there were few abler or more 
nergetic men in trade at the time — he did not know that 
Charles Pratt and Company had been part and parcel of the 
Standard Oil Company since October, 1874. 

Of course securing a large crude shipping business like Mr. 
Neyhart's was a valuable point for the Standard. It threw all 
of the refiners whom he had supplied out of crude oil and 
forced several of them to come to the Standard buyer — a first 
step, of course, toward a lease or sale. At every point, indeed, 
making it difficult for the refiner to get his raw product was 
one of the favourite manoeuvres of the combination. It was not 
only to crude oil it was applied. Factories which worked up 
the residuum or tar into lubricating oil and depended on 
Standard plants for their supply were cut off. There was one 
such in Cleveland — the firm of Morehouse and Freeman. Mr. 
Morehouse had begun to experiment with lubricating oils in 
1861, and in 1871 the report of the Cleveland Board of Trade 
devoted several of its pages to a description of his business. 
According to this account he was then making oils adapted 
to lubricating all kinds of machinery — he held patents for 
several brands and trade marks, and had produced that year 
over 25,000 barrels of different lubricants besides 120,000 
boxes of axle grease. At this time he was buying his stock or 
residuum from one or another of the twenty-five Cleveland 
refiners. Then came the South Improvement Company and 
the concentration of the town's refining interest in Mr. Rocke- 
feller's hands. Mr. Morehouse, according to the testimony he 
gave the Hepburn Commission in 1879, went to Mr. Rocke- 
eller, after the consolidation, to arrange for supplies. He was 
elcomed — the Standard Oil Company had not at that time 
gun to deal in lubricating oils — and encouraged to build a 
ew plant. This was done at a cost of $41,000, and a contract 
as made with the Standard Oil Company for a daily supply 

[ 163 ] 



THE HISTORY OF THE STANDARD OIL COMPANY 

of eighty-five barrels of residuum. Some time in 1874 this 
supply was cut down to twelve barrels. The price was put up 
too, and contracts for several months were demanded so that 
Mr. Morehouse got no advantage from the variation in crude 
prices. Then the freights went up on the railroads. He paid 
$1.50 and two dollars for what he says he felt sure his big 
neighbour was paying but seventy or seventy- five cents (there is 
no evidence of any such low rate to the Standard from Cleve- 
land to New York by rail). Now it was impossible for Mr. 
Morehouse to supply his trade on twelve barrels of stock. He 
begged Mr. Rockefeller for more. It was there in the Standard 
Oil works. Why could he not have it? He could pay for it. He 
and his partner offered to buy 5,000 barrels and store it, but 
Mr. Rockefeller was firm. All he could give Mr. Morehouse 
was twelve barrels a day. "I saw readily what that meant," 
said Mr. Morehouse, "that meant squeeze you out — buy your 
works. They have got the works and are running them; I 
am without anything. They paid about $15,000 for what cost 
me $41,000. He said that he had facilities for freighting and 
that the coal-oil business belonged to them; and any concern 
that would start in that business, they had sufficient money to 
lay aside a fund to wipe them out — these are the words." * 

At every refining centre in the country this process of con- 
solidation through persuasion, intimidation, or force, went on. 
As fast as a refinery was brought in line its work was assigned 
to it. If it was an old and poorly equipped plant it was usually 
dismantled or shut down. If it was badly placed, that is, if it 
was not economically placed in regard to a pipe-line and rail- 
road, it was dismantled even though in excellent condition. 
If it was a large and well-equipped plant advantageously 
located it was assigned a certain quota to manufacture, and it 
did nothing but manufacture. The buying of crude, the mak- 

* Condensed from testimony of Mr. Morehouse before the special committee on 
railroads, New York Assembly, 1879. 

[164] 



LAYING THE FOUNDATIONS OF A TRUST 

ing of freight rates, the selling of the output remained with 
Mr. Rockefeller. The contracts under which all the refineries 
brought into line were run were of the most detailed and 
rigid description, and they were executed as a rule with a 
secrecy which baffles description. Take, for example, a run- 
ning arrangement made by Rockefeller in 1876, with a Cleve- 
land refinery, that of Scofield, Shurmer and Teagle. The mem- 
bers of this concern had all been in the refining business in 
Cleveland in 1872 and had all handed over their works to 
Mr. Rockefeller, when he notified them of the South Improve- 
ment Company's contracts. Mr. Shurmer declared once in an 
affidavit that he alone lost $20,000 by that manoeuvre. The 
members of the firm had not stayed out of business, however. 
Recovering from the panic caused by the South Improvement 
Company, they had united in 1875, building a refinery worth 
$65,000, with a yearly capacity of 180,000 barrels of crude. 
On the first year's business they made $40,000. Although 
this was doing well, they were convinced they might do better 
if they could get as good freight rates as the Standard Oil 
Company, and in the spring of 1876 they brought suit against 
the Lake Shore and Michigan Southern and the New York 
Central and Hudson River Railroads for "unlawful and unjust 
discrimination, partialities and preferences made and prac- 
tised ... in favour of the Standard Oil Company, enabling 
the said Standard Oil Company to obtain to a great extent 
the monopoly of the oil and naphtha trade of Cleveland." 
The suit was not carried through at the time. Mr. Rockefeller 
seems to have suggested a surer way to the firm of getting the 
rates they wanted. This was to make a running arrangement 
with him. He seems to have demonstrated to them that they 
could make more money under his plan than outside, and they 
signed a contract for a remarkable "joint adventure." Accord- 
ing to this document Scofield, Shurmer and Teagle put into 
the business a plant worth at that time about $73,000 and 

[165] 



THE HISTORY OF THE STANDARD OIL COMPANY 
their entire time. Mr. Rockefeller put in $10,000 and his 
rebates! That is, he secured for the firm the same preferential 
rates on their shipments that the Standard Oil Company 
enjoyed. The firm bound itself not to refine over 85,000 bar- 
rels a year and neither jointly nor separately to engage in any 
other form of oil business for ten years — the life of the con- 
tract. Scofield, Shurmer and Teagle were guaranteed a profit 
of $35,000 a year. Profits over $35,000 went to Mr. Rocke- 
feller up to $70,000; any further profits were divided. 

The making of this contract and its execution were attended 
by all the secret rites peculiar to Mr. Rockefeller's busi- 
ness ventures. According to the testimony of one of the firm 
given a few years later on the witness stand in Cleveland the 
contract was signed at night at Mr. Rockefeller's house on 
Euclid Avenue in Cleveland, where he told the gentlemen 
that they must not tell even their wives about the new arrange- 
ment, that if they made money they must conceal it — they 
were not to drive fast horses, "put on style," or do anything 
to let people suspect there were unusual profits in oil refin- 
ing. That would invite competition. They were told that all 
accounts were to be kept secret. Fictitious names were to be 
used in corresponding, and a special box at the post-office was 
employed for these fictitious characters. In fact, smugglers 
and house-breakers never surrounded their operations with 
more mystery. 

But make his operations as thickly as he might in secrecy, 
the effect of Mr. Rockefeller's steady and united attack on the 
refining business was daily becoming more apparent. Before 
the end of 1876 the alarm among oil producers, the few inde- 
pendent refineries still in business, and even in certain railroad 
circles was serious. On all sides talk of a united effort to meet 
the consolidation was heard. 



[166] 






CHAPTER SIX 
STRENGTHENING THE FOUNDATIONS 



FIRST INTERSTATE COMMERCE BILL— THE BILL PIGEON-HOLED THROUGH 
EFFORTS OF STANDARD'S FRIENDS— INDEPENDENTS SEEK RELIEF BY PRO- 
POSED CONSTRUCTION OF PIPE-LINES— PLANS FOR THE FIRST SEABOARD 
PIPE-LINE— SCHEME FAILS ON ACCOUNT OF MISMANAGEMENT AND STAND- 
ARD AND RAILROAD OPPOSITION— DEVELOPMENT OF THE EMPIRE TRANS- 
PORTATION COMPANY AND ITS PROPOSED CONNECTION WITH THE REFINING 
BUSINESS— STANDARD, ERIE AND CENTRAL FIGHT THE EMPIRE TRANSPOR- 
TATION COMPANY AND ITS BACKER, THE PENNSYLVANIA RAILROAD— THE 
PENNSYLVANIA FINALLY QUITS AFTER A BITTER AND COSTLY WAR— EMPIRE 
LINE SOLD TO THE STANDARD— ENTIRE PIPE-LINE SYSTEM OF OIL REGIONS 
NOW IN ROCKEFELLER'S HANDS— NEW RAILROAD POOL BETWEEN FOUR 
ROADS— ROCKEFELLER PUTS INTO OPERATION SYSTEM OF DRAWBACKS 
ON OTHER PEOPLE'S SHIPMENTS— HE PROCEEDS RAPIDLY WITH THE WORK 
OF ABSORBING RIVALS. 

FROM the time the Central Association announced 
itself, independent refiners and the producers as a 
body watched developments with suspicion. They 
had little to go on. They had no means of proving 
what was actually the fact that the Central Association 
was the Standard Oil Company working secretly to bring 
its competitors under control or drive them out of business. 
They had no way of knowing what was actually the fact 
that the Standard had contracts with the Central, Erie 
and the Pennsylvania which gave them rebates on the low- 
est tariff which others paid. That this must be the case, 
however, they were convinced, and they determined early in 

Ii 876 to call on Congress for another investigation. A hearing 
[167] 



THE HISTORY OF THE STANDARD OIL COMPANY 

was practically insured, for Congress since 1872 had given 
serious attention to the transportation troubles. The Windom 
Committee of 1874 had made a report, the sweeping recom- 
mendations of which gave much encouragement to those who 
suffered from the practices of the railroads. Among other 
things this committee recommended that all rates, drawbacks, 
etc., be published at every point and no changes allowed in 
them without proper notification. It recommended the Bureau 
of Commerce which, in 1902, twenty-eight years later, was 
created. So serious did the Windom Committee consider the 
situation in 1874, that it made the following radical recom- 
mendations : 

The only means of securing and maintaining reliable and effective competition 
between railways is through national or state ownership, or control of one or more 
lines which, being unable to enter into combinations, will serve as a regulation of 
other lines. 

One or more double-track freight-railways honestly and thoroughly constructed, 
owned or controlled by the government, and operated at a low rate of speed, would 
doubtless be able to carry at a much less cost than can be done under the present 
system of operating fast and slow trains on the same road; and, being incapable of 
entering into combinations, would no doubt serve as a very valuable regulator of 
existing railroads within the range of their influence. 

With Congress in such a temper the oil men felt that there 
might be some hope of securing the regulation of interstate 
commerce they had asked for in 1872. The agitation resulted 
in the presentation in the House of Representatives, in April, 
of the first Interstate Commerce Bill which promised to be 
effective. The bill was presented by James H. Hopkins of 
Pittsburg. Mr. Hopkins had before his eyes the uncanny fate 
of the independent oil interests of Pittsburg, some twenty-five 
factories in that town having been reduced to two or three 
in three and one-half years. He had seen the oil-refining busi- 
ness of the state steadily reduced, and he thought it high 
time that something was done. In aid of his bill a House 

[168] 



STRENGTHENING THE FOUNDATIONS 

investigation was asked. It was soon evident that the Standard 
was an enemy of this investigation. Through the efforts of 
a good friend of the organisation — Congressman H. B. Payne, 
of Cleveland — the matter was referred to the Committee on 
Commerce, where a member of the house, J. N. Camden, 
whose refinery, the Camden Consolidated Oil Company, if 
it had not already gone, soon after went into the Standard Oil 
Alliance, appeared as adviser of the chairman! Now what 
Mr. Hopkins wanted was to compel the railroads to present 
their contracts with the Standard Oil Company. The Com- 
mittee summoned the proper railroad officers, Messrs. Cassatt, 
Devereux and Rutter, and O. H. Payne, treasurer of the 
Standard Oil Company. Of the railroad men, only Mr. Cas- 
satt appeared, and he refused to answer the questions asked or 
to furnish the documents demanded. Mr. Payne refused also 
to furnish the committee with information. The two principal 
witnesses of the oil men were E. G. Patterson of Titus- 
ville, to whose energy the investigation was largely due, and 
Frank Rockefeller of Cleveland, a brother of John D. 
Rockefeller. Mr. Patterson sketched the history of the oil 
business since the South Improvement Company identified the 
Standard Oil Company with that organisation, and framed 
the specific complaint of the oil men, as follows: "The rail- 
road companies have combined with an organisation of indi- 
viduals known as the Standard Ring; they give to that party 
the sole and entire control of all the petroleum refining interest 
and petroleum shipping interest in the United States, and 
consequently place the whole producing interest entirely at 
their mercy. If they succeed they place the price of refined oil 
as high as they please. It is simply optional with them how 
much to give us for what we produce." 

Frank Rockefeller gave a pretty complete story of the 
trials of an independent refiner in Cleveland during the pre- 
ceding four years. His testimony in regard to the South 

[169] 



THE HISTORY OF THE STANDARD OIL COMPANY 

Improvement Company has already been quoted. He declared 
that at the moment, his concern, the Pioneer Oil Company, 
was unable to get the same rates as the Standard ; the freight 
agent frankly told him that unless he could give the road 
the same amount of oil to transport that the Standard did 
he could not give the rate the Standard enjoyed. Mr. Rocke- 
feller said that in his belief there was a pooling arrangement 
between the railroads and the Standard and that the rebate 
given was "divided up between the Standard Oil Company 
and the railroad officials." He repeatedly declared to the com- 
mittee that he did not know this to be a positive fact, that 
he had no proof, but that he believed such was the truth. 
Among the railroad officials whom he mentioned as in his 
opinion enjoying spoils were W. H. Vanderbilt, Thomas 
Scott and General Devereux. Of course the newspapers had 
it that he had sworn that such was the fact. Colonel Scott 
promptly wired the following denial: 

" The papers of this morning publish that a man named Rockefeller stated before 
your committee that myself and other officers of this company were participants in 
rebates made to the Standard Oil Company. So far as the statement relates to myself 
and the officers of this company it is unqualifiedly false, and I have to ask that you will 
summon the officers of the Standard Oil Company, or any other parties that may 
have any knowledge of that subject, in order that such villainous and unwarranted 
statements may be corrected." 

General Devereux published in the Cleveland press an 
equally emphatic denial. Although Mr. Rockefeller promptly 
declared that he had stated to the committee that he had no 
personal knowledge that there was such a pool as he had 
intimated between the railroad men and the Standard, that he 
had only given his suspicions, there were plenty of people to 
overlook his explanation and assert that he had given proof of 
such a division of spoils. The belief spread and is met even 
to-day in oil circles. Now the only basis for any such assertion 

[ 170] 



STRENGTHENING THE FOUNDATIONS 

was the fact that W. H. Vanderbilt, Peter H. Watson and 

IAmasa Stone were at that time, 1876, stockholders in the 
Standard Oil Company. There is no evidence of which the 
writer knows that General Devereux or Colonel Scott ever 
held any stock in the concern. Indeed, in 1879, when A. J. 
Cassatt was under examination as to the relations of the Penn- 
sylvania Railroad and the Standard Oil Company, his own 
lawyer took pains to question him on this point — an effort, 
no doubt, to silence the accusation which at that date was 
constantly repeated. 

"Mr. Cassatt," Mr. MacVeagh said, "I want to direct your attention to a personal 
matter which was asked you to a certain extent. You were asked whether you had 
any knowledge that Mr. Vanderbilt, representing the New York Central, or Mr. Jewett, 
representing the Erie, had any interest whatever in the Standard Oil Company or 
any of its affiliated companies. I wish to extend that question to the other trunk 
lines. I wish you would state whether or not to your knowledge Mr. Garrett, or any- 
body representing the Baltimore and Ohio, had any such interest ? " 

"They have not to my knowledge." 

"Then I wish you would state whether Mr. Scott or yourself, or any other officers 
of the Pennsylvania Railroad Company, had any such interest ?" 

"Never to my knowledge. I speak of absolute knowledge as to myself, but as to 
Mr. Scott to the best of my knowledge and belief." 

Of course after this controversy the railroads were more 
obdurate than ever. Mr. Payne and Mr. Camden were active, 
too, in securing the suppression of the investigations and they 
soon succeeded not only in doing that but in pigeon-holing 
for the time Mr. Hopkins's Interstate Commerce Bill. 

But the oil men had not been trusting entirely to Con- 
gressional relief. From the time that they became convinced 
that the railroads meant to stand by the terms of the "Rutter 
lircular" they began to seek an independent outlet to the 
sea. The first project to attract attention was the Columbia 
Conduit Pipe Line. This line was begun by one of the pictur- 

[171] 



THE HISTORY OF THE STANDARD OIL COMPANY 

csque characters of Western Pennsylvania, "Dr." David Hos- 
tetter, the maker of the famous Hostetter's Bitters. Dr. Hos- 
tetter's Bitters' headquarters were in Pittsburg. He had become 
interested in oil there, and had made investments in Butler 
County. In 1874 he found himself hampered in disposing 
of his oil and conceived the idea of piping it to Pittsburg, 
where he could make a connection with the Baltimore and 
Ohio road, which up to this time had refused to go into the oil 
pool. Now at that time the right of eminent domain for 
pipes had been granted in but eight counties of Western 
Pennsylvania. Allegheny County, in which Pittsburg is 
located, was not included in the eight, a restriction which the 
oil men attributed rightly, no doubt, to the influence of the 
Pennsylvania Railroad in the State Legislature. That road 
could hardly have been expected to allow the pipes to go to 
Pittsburg and connect with a rival road if it could help it. Dr. 
Hostetter succeeded in buying a right of way through the 
county, however, and laid his pipes within a few miles of the 
city to a point where he had to pass under a branch of the 
Pennsylvania Railroad. The spot chosen was the bed of a 
stream over which the railroad passed by a bridge. Dr. Hos- 
tetter claimed he had bought the bed of the run and that the 
railroad owned simply the right to span the run. He put down 
his pipes, and the railroad sent a force of armed men to the 
spot, tore up the pipes, fortified their position and prepared to 
hold the fort. The oil men came down in a body, and, seizing 
an opportune moment, got possession of the disputed point. 
The railroad had thirty of them arrested for riot, but was not 
able to get them committed; it did succeed, however, in pre- 
venting the relaying of the pipes and a long litigation over Dr. 
Hostetter's right to pass under the road ensued. Disgusted with 
this turn of affairs Dr. Hostetter leased the line to three 
young independent oil men of whom we are to hear more 
later. They were B. D. Benson, David McKelvy and Major 

[ 172] 



STRENGTHENING THE FOUNDATIONS 

Robert E. Hopkins, all of Titusville. Resourceful and deter- 
lined they built tank wagons into which the oil from the pipe 
r as run and was carted across the tracks on the public high- 
way, turned into storage tanks and again repiped and pumped 
to Pittsburg. They were soon doing a good business. The 
ight to get the Columbia Conduit Line into Pittsburg aroused 
igain the agitation in favour of a free pipe-line bill, and early 
in 1875 bills were presented in both the Senate and House of 
the state and bitter and long fights over them followed. It 
was charged that the bills were in the interest of Dr. Hos- 
tetter. He wants to transport his blood bitters cheaply, sneered 
one opponent! Many petitions for the bill were circulated, but 
there were even stronger remonstrances and the source of 
some of them was suspicious enough; for instance, that of 
the "Pittsburg refiners representing about one-third of the 
refining capacity of the Pennsylvania district and nearly one- 
third of the entire capacity now in business." As the Pitts- 
burg refiners were nearly all either owned or leased by the 
Standard concern, and the few independents had no hope save 
in a free pipe-line, there seems to be no doubt about the origin 
of that remonstrance. Although the bills were strongly sup- 
ported, they were defeated, and the Columbia Conduit Line 
continued to "break bulk" and cart its oil over the railroad 
track. 

Another route was arranged which for a time promised suc^ 
cess. This was to bring crude oil by barges to Pittsburg, then 
to carry the refined down the Ohio River to Huntington and 
thence by the Richmond and Chesapeake road to Richmond. 
This scheme, started in February, was well under way by 
May, and "On to Richmond!" was the cry of the inde- 
pendents. Everything possible was done to make this attempt 
fail. An effort was even made to prevent the barges which 
came down the Allegheny River from unloading, and this 
actually succeeded for some time. There seemed to be always 

[173] 



THE HISTORY OF THE STANDARD OIL COMPANY 

some hitch in each one of the channels which the independents 
tried, some point at which they could be so harassed that the 
chance of a living freight rate which they had seen was 
destroyed. 

Some time in April, 1876, the most ambitious project of 
all was announced. This was a seaboard pipe-line to be run 
from the Oil Regions to Baltimore. Up to this time the pipe- 
lines had been used merely to gather the oil from the wells 
and carry it to the railroads. The longest single line in oper- 
ation was the Columbia Conduit, and it was built thirty miles 
long. The idea of pumping oil over the mountains to the 
sea was regarded generally as chimerical. To a trained civil 
engineer it did not, however, present any insuperable obsta- 
cles, and in the winter of 1875 anc * 1876 Henry Harley, 
whose connection with the Pennsylvania Transportation Com- 
pany has already been noted, went to his old chief in the Hoo- 
sac Tunnel, General Herman Haupt, and laid the scheme 
before him. If it was a feasible idea would General Haupt 
take charge of the engineering for the Pennsylvania Trans- 
portation Company? At the same time Mr. Harley employed 
General Benjamin Butler to look after the legal side of such 
an undertaking. Both General Haupt and General Butler 
were enthusiastic over the idea and took hold of the work 
with a will. It was not long before the scheme began to 
attract serious attention.The Eastern papers in particular took 
it up. The references to it were, as a whole, favourable. It 
was regarded everywhere as a remarkable undertaking: 
"Worthy," the New York Graphic said, "to be coupled with 
the Brooklyn Bridge, the blowing up of Hell Gate, and the 
tunnelling of the Hudson River." As General Haupt's plans 
show, it was a tremendous undertaking, for the line would be, 
when finished, at least 500 miles long, and it would be 
worked by thirty or more tremendous pumps. On July 25 a 
meeting was held at Parker's Landing, presenting publicly 

[174] 



STRENGTHENING THE FOUNDATIONS 

the reports of General Haupt and General Butler. The 
authority and seriousness of the scheme as set forth at this 
meeting alarmed the railroads. If this seaboard line went 
through it was farewell to the railroad-Standard combination. 
Oil could be shipped to the seaboard by it at a cost of 16 2-3 
cents a barrel, General Haupt estimated. All of the interests, 
little and big, which believed that they would be injured by 
the success of the line, began an attack. 

Curiously enough one of the first points of hostility was 
General Haupt himself. An effort was made to discredit his 
estimate in order to scare people from taking stock. They 
recalled the Hoosac Tunnel scandal and the fact that the 
General once built a bridge which had tumbled down, ridi- 
culed his estimate of the cost, etc., etc. The "card" in which 
General Haupt answered his chief critic, one who signed 
himself "Vidi," was admirable: 

A CARD FROM GENERAL HAUPT 
What are the charges that I am requested to "smash" ? 
They are, as I understand them from others, for some I have not seen : 

1. That I once built a bridge that tumbled down. 

2. That I was connected with the Hoosac Tunnel that cost seventeen millions of 
dollars. 

3. That my estimates of cost of transportation are ridiculously low and unreliable. 

1. I did design a bridge some twenty years ago, and constructed a span near Green- 
field, in Massachusetts, which gave way, owing to a defective casting, while being 
tested. The bridge was not finished; had not been opened to the public; had not been 
accepted from the contractor, who repaired the damage in such a manner that a re- 
currence of a break would have been impossible. I have built spans of bridges and 
tested them until they broke, to ascertain their ultimate strength, but I supposed 
that this was a matter that concerned myself and not the public. If the bridge had 
been thrown open for public use, and an accident had then occurred from defective 

sign or material, the engineer might have been censurable, but not otherwise. In 
experience of nearly forty years I have never had a bridge to fail, after being opened 
>r travel, or a piece of masonry to give way. No accident occurred even upon the 
iporary military bridges constructed during the war, which President Lincoln used 
say were built of bean poles and corn stalks. 

[175] 



THE HISTORY OF THE STANDARD OIL COMPANY 

2. How about the Hoosac Tunnel ? 

In 1856 I undertook to build the Hoosac Tunnel, at that time ridiculed as visionary 
and utterly impracticable. I carried it on until 1862, when its practicability was so 
fully demonstrated that it was considered some discredit to Massachusetts to allow 
the work to proceed under engineers from another state, and honourable members 
of the Legislature declared that Massachusetts had engineers as competent as any 
that could be found in Pennsylvania. The work in my hands, as was proved by reports 
of investigating committees, was costing less than $2,000,000, and the trouble then 
was that the margin was considered too large, and that I was making too much money 
on the $2,000,000, which the state had agreed to advance. In 1862 the state took 
the work out of my hands and put it under control of state commissioners and engineers. 
The result was that instead of getting the Hoosac Tunnel completed for $2,000,000, 
which was amply sufficient in the hands of H. Haupt and Company, it has now 
cost, under state management, nearly $17,000,000. 

I hope this explanation will be considered sufficient to "smash" Number 2. 

3. As to Number 3, the insufficiency of my estimate. 

The items which enter into such an estimate are pure and simple. There has been 
but one omission, and that is malicious mischief or deviltry, and this item is so uncertain 
that, without a more intimate acquaintance with "Vidi" and his supporters, I could 
not undertake to estimate it. 

I have put coal at five dollars per ton or eighteen cents per bushel, now worth five 
cents at Brady's and eight at Pittsburg. Is not this enough ? I have allowed fifty per 
cent, greater consumption at each station than has been estimated by others. I have 
allowed $1,000 a year for each of two engine men at each station. Will anyone say 
this is not sufficient ? And I have, to be safe, estimated the work down below the results 
given by any of the ordinary hydraulic formula. It would be absurd to tell experienced 
pipe men that oil cannot be pumped fifteen miles under 900 pounds pressure through 
a four-inch pipe with a discharge of 5,000 barrels per day, which is all that the esti- 
mate is based upon, and it allows sixty-five days' stoppage besides. 

Please, gentlemen, let me alone. I have had enough of newspaper controversy in 
former years. I am sick of it. 

H. Haupt. 

At the same time that General Haupt was attacked the 
Pennsylvania Transportation Company was criticised for bad 
management. A long letter to the Derrick August 14, 1876, 
claimed that the company in the past had been mismanaged; 
that the credit it asked could not be given safely; that its 
management had been such that it had scarcely any business 

[176] 



STRENGTHENING THE FOUNDATIONS 

left. Indeed this critic claimed that the last pipe-line organ- 
ised, a small line known as the Keystone, had during the last 
six months done almost double the business of the Pennsyl- 
vania. Under the direction of the Pennsylvania Railroad, it 
was believed, the Philadelphia papers began to attack the plan. 
Their claim was that the charters under which the Pennsyl- 
vania Transportation Company expected to operate would not 
allow them to lay such a pipe-line. The opposition became such 
that the New York papers began to take notice of it. The 
Derrick on September 16, 1876, copies an article from the 
New York Bulletin in which it is said that the railroads 
and the Standard Oil Company, "now stand in gladiatorial 
array, with shields poised and sword ready to deal the cut." 
An opposition began to arise, too, from farmers through whose 
property an attempt was being made to obtain right of way. 
In Indiana and Armstrong counties the farmers complained 
to the secretary of internal affairs, saying that the company 
had no business to take their property for a pipe-line. One of 
the common complaints of the farmers' newspapers was that 
leakage from the pipes would spoil the springs of water, 
curdle milk, and burn down barns. The matter assumed such 
proportions that the secretary referred it to the attorney- 
general for a hearing. In the meantime the Pennsylvania 
Transportation Company ma3e the most strenuous efforts to 
secure the right of way. A large number of men were sent out 
to talk over the farmers into signing the leases. Hand bills 
were distributed with an appeal to be generous and to free 
the oil business from a monopoly that was crushing it. These 
same circulars told the farmers that a monopoly had hired 
agents all along the route misrepresenting the facts about their 
intentions. Mr. Harley, under the excitement of the enter- 
prise and the opposition it aroused, became a public figure, 
and in October the New York Graphic gave a long interview 
with him. In this interview Mr. Harley claimed that the 

[177] 



THE HISTORY OF THE STANDARD OIL COMPANY 

pipe-line scheme was gotten up to escape the Standard Oil 
monopoly. Litigation, he declared, was all his scheme had 
to fear. "John ^- Rockefeller, president of the Standard 
monopoly," he said, "is working against us in the country 
newspapers, prejudicing the farmers and raising issues in the 
courts, and seeking also to embroil us with other carrying 
lines." 

It was not long, however, before something more serious 
than the farmers and their complaints got in the way of the 
Pennsylvania Transportation Company. This was a rumour 
that the company was financially embarrassed. Their certifi- 
cates were refused on the market, and in November a receiver 
was appointed. Different members of the company were 
arrested for fraud, among them two or three of the best 
known men in the Oil Regions. The rumours proved only 
too true. The company had been grossly mismanaged, and 
the verification of the charges against it put an end to this 
first scheme for a seaboard pipe-line. 

While all these efforts doomed to failure or to but tem- 
porary success were making, a larger attempt to meet Mr.; 
Rockefeller's consolidation was quietly under way. Among; 
those interested in the oil business who had watched the grow- 
ing power of the Standard with most concern was the head of j 
the Empire Transportation Company, Colonel Joseph D. 
Potts. In connection with the Pennsylvania Railroad Colonel 
Potts had built up this concern, founded in 1865, until it was 
the most perfectly developed oil transporter in the country. 
It operated 500 miles of pipe, owned a thousand oil-tank 
cars, controlled large oil yards at Communipaw, New Jersey, 
was in every respect indeed a model business organisa- 
tion, and it had the satisfaction of knowing that what it was 
it had made itself from raw material, that its methods were 
its own, and that the practices it had developed were those 
followed by other pipe-line companies. While the Empire 

[178] 



STRENGTHENING THE FOUNDATIONS 

had far outstripped all its early competitors, there had grown 
up in the last year a rival concern which Colonel Potts must 
have watched with anxiety. This concern, known as the United 
Pipe Line, was really a Standard organisation, for Mr. Rocke- 
feller, in carrying out his plan of controlling all the oil refin- 
eries of the country, had been forced gradually into the pipe- 
line business. 

His first venture seems to have been in 1873. In that year the 
oil shipping firm of J. A. Bostwick and Company laid a short 
pipe in the Lower Field, as the oil country along the Allegheny 
River was called. Now J. A. Bostwick was one of the charter 
members of the South Improvement Company, and when 
Mr. Rockefeller enlarged his business in 1872 because of the 
power that enterprise gave him, he took Mr. Bostwick into 
the Standard. This alliance, like all the operations of that ven- 
ture, was secret. The bitterness of the Oil Regions against 
the members of the South Improvement Company was so great 
for many months after the Oil War that Mr. Bostwick and 
Mr. Rockefeller seem to have concluded in 1873 that it would 
be a wise precautionary measure for them to lay a pipe-line 
upon which they could rely for a supply of oil in case the oil 
men attempted again to cut them of! from crude, as they had 
succeeded in doing in 1872. Accordingly, a line was built and 
put in the charge of a man who has since become known as one 
of the "strong men" of the Standard Oil Company. This 
man, Daniel O'Day, was a young Irishman who had first 
appeared in the oil country in 1867, and had at once made so 
good a record for himself as transporting agent, that in 1869, 
when the oil shipping firm of J. A. Bostwick needed a man 
to look after its shipments, he was employed. The record 
he made in the next two years was such that it reached the 
ear of Jay Gould himself, the president of the Erie, over 
which Mr. Bostwick was doing most of his shipping. Now the 
Erie at this time was making a hard fight to meet the growth 

[ i79] 



THE HISTORY OF THE STANDARD OIL COMPANY 

of the Empire Transportation Company. So important did 
Jay Gould think this struggle that in 1871 he himself came to 
the Oil Regions to look after it. One of the first men sum- 
moned to his private car as it lay in Titusville was the young 
Irishman, O'Day. He came as he was, begrimed with the 
oil of the yards, but Mr. Gould was looking for men who 
could do things, and was big enough to see through the grime. 
When the interview was concluded, Daniel O'Day had con- 
vinced Jay Gould that he was the man to divert the oil traffic 
from the Pennsylvania to the Erie road, and he walked out 
with an order in his pocket which lifted him over the head 
of everybody on the road so far as that particular freight was 
concerned, for it gave him the right to seize cars wherever he 
found them. For weeks after this he practically lived on the 
road, turning from the Pennsylvania in this time a large vol- 
ume of freight, and making it certain that it would have to 
look to its laurels as it never had before. 

The next year after this episode came the Oil War. The 
anger of the oil men was poured out on everyone connected 
in any way with the stockholders of the South Improvement 
Company, and among others on Mr. O'Day. He knew no 
more of the South Improvement Company at the start than 
the rest of the region, but he did know that it was his business 
to take care of certain property entrusted to him. Resolutions 
calling on him to resign were passed by oil exchanges and 
producers' unions. Mobs threatened his cars, his stations, his 
person, but with the grit of his race he hung to his post. There 
was, perhaps, but one other man in the employ of members of 
the South Improvement Company who showed the same cour- 
age, and that was Joseph Seep of Titusville. Almost every 
other employee fled, the principals in the miserable business 
took care to stay out of the country, but Mr. O'Day and Mr. 
Seep polished their shillalahs and stood over their property 
night and day until the war was over. Their courage did not go 

[180] 



STRENGTHENING THE FOUNDATIONS 

unrewarded. They were made the chief executive representa- 
tives, in the region, of the consolidated Standard interests 
which followed the war, though neither of them knew at the 
time that they were in the Standard employ. They supposed 
that the shipper Bostwick was an independent concern. It was 
a man of grit and force and energy then who took hold of the 
Standard's pipe-line in 1873. Rapid growth went on. The 
little line with which they started became the American Trans- 
fer Company, gradually extending its pipes to seventy or 
eighty miles in Clarion County, and in 1875 building lines 
in the Bradford Field. 

The American Transfer Company was soon working in 
harmony with the United Pipe Lines, of which Captain J. J. 
Vandergrift was the president. This system had its nucleus, 
like all the others of the country, in a short private line, built 
in 1869 by Captain Vandergrift. It had grown until in 1874 it 
handled thirty per cent, of the oil of the region. Now in 
1872, after the Oil War, Captain Vandergrift had become a 
convert to Mr. Rockefeller's theory of the "good of the oil 
business," and as we have seen, had gone into the National 
Refiners' Association as vice-president. Later he became a 
director in the Standard Oil Company. In 1874 he sold a one- 
third interest of his great pipe-line system to Standard men, 
and the line was reorganised in the interests of that company. 
That is, the Standard Oil Combination in 1876 was a large 
transporter of oil, for the directors and leading stockholders 
owned and operated fully forty per cent, of the pipe-lines of 
the Oil Regions, owned all but a very few of the tank cars on 
both the Central and Erie roads, and controlled under leases 
two great oil terminals, those of the Erie and Central roads. 
It was little wonder that Colonel Potts watched this rapid 
concentration of transportation and refining interests with 
dread. It was more dangerous than the single shipper, and 
he had always fought that idea on the ground of policy. "In 

[181] 



THE HISTORY OF THE STANDARD OIL COMPANY 

the first place, it concentrates great power in the hands of one 
party over the trade of the road," he told an investigating 
committee of Congress in 1888. "They can remove it at pleas- 
ure. In the second place I think a large number of parties 
engaged in the same trade are very apt to divide themselves 
into two different classes as to the way of viewing markets; 
one class will be hopeful, and the other the reverse. The 
result will be there will be always one or the other class 
engaged in shipping some of the traffic. . . . The whole 
question seems to me to resolve itself into determining what 
policy will bring the largest volume in the most regular way 
to the carrier; and it is my opinion, based upon such experi- 
ence as I have had, that a hundred shippers of a carload a day 
would be sure to give to a carrier a more regular volume of 
business, and I think, probably, a larger total volume of busi- 
ness in a year's time than one shipper of a hundred cars a 
day." * 

Holding this theory, Colonel Potts had opposed the rebate 
to the Standard granted by the Pennsylvania in 1875. Three 
years later he described in a communication, published anony- 
mously, the effect of the rebates granted at that time : 

" The final agreement with the railways was scarcely blotter-dried ere stealthy move- 
ments toward the whole line of outside refiners were evident, although rather felt 
than seen. As long as practicable, they were denied as mere rumours, but as they 
gradually became accomplished victories, as one refiner after another, through terror, 
through lack of skill in ventures, through financial weakness, fell shivering with dislike 
into the embrace of this commercial octopus, a sense of dread grew rapidly among 
those independent interests which yet lived, and notably among a portion of the railroad 
transporters. " 

The chief "railroad transporter" who shared with the inde- 
pendents the sense of dread which Mr. Rockefeller's absorp- 
tion of refineries awakened was Mr. Potts himself. As he saw 

* Proceedings in Relation to Trusts, House of Representatives, 1888. Report 
Number 3112. 

[182] 



STRENGTHENING THE FOUNDATIONS 

the independents of Pittsburg, Philadelphia, New York and 
the creek, shutting down, selling out, going into bankruptcy, 
while the Standard and its allies grew bigger day by day, as 
he saw the Standard interest developing a system of trans- 
portation greater than his own, he concluded to prevent, if 
possible, the one shipper in the oil business. "We reached 
the conclusion," said Colonel Potts in 1888, "that there were 
three great divisions in the petroleum business — the produc- 
tion, the carriage of it, and the preparation of it for mar- 
ket. If any one party controlled absolutely any one of those 
three divisions, it practically would have a very fair show 
of controlling the others. We were particularly solicitous 
about the transportation, and we were a little afraid that 
the refiners might combine in a single institution, and some 
of them expressed a strong desire to associate themselves 
permanently with us. We therefore suggested to the Penn- 
sylvania road that we should do what we did not wish 
to do — associate ourselves. That is, our business was trans- 
portation and nothing else; but, in order that we might 
reserve a nucleus of refining capacity to our lines, we suggested 
we should become interested in one or more refineries, and 
we became interested in two, one in Philadelphia and one in 
New York. It was incidental merely to our transportation. 
The extreme limit was 4,000 barrels a day only." 

It was in the spring of 1876 that the Empire began to 
interest itself in refineries. No sooner did Mr. Rockefeller 
discover this than he sought Mr. Scott and Mr. Cassatt, then 
the third vice-president of the Pennsylvania, in charge of 
transportation. It was not fair! Mr. Rockefeller urged. The 
Empire was a transportation company. If it went into the 
refining business it was not to be expected that it would deal 
as generously with rivals as with its own factories; besides, it 
would disturb the one shipper who, they all had agreed, was 
such a benefit to the railroads. Mr. Scott and Mr. Cassatt 

[183] 



THE HISTORY OF THE STANDARD OIL COMPANY 
might have reminded Mr. Rockefeller that he was as truly 
a transporter as the Empire, but if they did they were met 
with a prompt denial of this now well-known fact. He was 
an oil refiner — only that and nothing more. "They tell us that 
they do not control the United Pipe Lines," Mr. Cassatt 
said in his testimony in 1879. Besides, urged Mr. Rockefeller, I 
if they have refineries of course they will give them better : 
terms than they do us. Mr. Flagler told the Congressional 
Committee of 1888 that the Standard was unable to obtain 
rates through the Empire Transportation Company over the 
Pennsylvania Railroad for the Pittsburg or Philadelphia re- 
fineries as low as were given by competing roads, and, added 1 
he, "from the fact that the business during those years was 
so very close as to leave scarcely any margin of profit under 
the most advantageous circumstances. And we, finding our- j 
selves undersold in the markets by competitors whom we knew 
had not the same facilities in the way of mechanical appli- 
ances for doing the business, knew that there was but one con- | 
elusion to be reached, and that was that the Empire Transpor- 
tation Company favoured certain other shippers, I would say 
favoured its own refineries to our injury." 

As the Standard Oil Company paid a dividend of about 
fourteen per cent, in both 1875 and 1876, besides spending 
large sums in increasing its plants and facilities, the margin of 
profit cannot have been so low as it seemed to Mr. Flagler 
in 1888 to have been; naturally enough, for he saw dividends 
of from fifty to nearly 100 per cent, later. 

Mr. Vanderbilt and Mr. Jewett soon joined their protests 
to Mr. Rockefeller's. "The steps it (the Empire) was then 
taking," said Mr. Jewett, "unless checked would result in a 
diversion largely of the transportation of oil from our roads; 
the New York Central road and our own determined that 
we ought not to stand by and permit those improvements and 
arrangements to be made which, when completed, would be 

[184] 




A. J. CASSATT 



l8 77 



Third vice-president of the Pennsylvania Rail- 
road in charge of transportation when first con- 
tract was made by that road with the Standard 
Oil Company. 




GENERAL GEORGE B. MC CLELLAN 

President of the Atlantic and Great Western 
Railroad at the time of the South Improvement 
Company. General McClellan did not sign the 
contract. 




GENERAL JAMES H. DEVEREUX 

Who in 1868 as vice-president of the Lake 
Shore and Michigan Southern Railroad first 
granted rebates to Mr. Rockefeller's firm. 




JOSEPH D. POTTS 

President of the Empire Transportation Com- 
pany. Leader in the struggle between the Penn- 
sylvania Railroad and the Standard Oil Company 
in 1877. 



i 



STRENGTHENING THE FOUNDATIONS 

beyond our control."* These protests increased in vehemence, 
until finally the Pennsylvania officials remonstrated with Mr. 
Potts. "We endeavoured," says Mr. Cassatt, "to try to get 
those difficulties harmonised, talked of getting the Empire 
Transportation Company to lease its refineries to the Stand- 
ard Oil Company, or put them into other hands, but we did 
not succeed in doing that." "Rather than do that," Colonel 
Potts told Mr. Cassatt, when he proposed that the Empire 
sell its refineries, "we had rather you would buy us out and 
close our contract with you." 

When the Standard Oil Company and its allies, the Erie 
and Central, found that the Pennsylvania would not or could 
not drive the Empire from its position, they determined on 
war. Mr. Jewett, the Erie president, in his testimony of 1879 
before the Hepburn Commission, takes the burden of starting 
the fight. "Whether the Standard Oil Company was afraid 
of the Empire Line as a refiner," he said, "I have no means 
of knowing. I never propounded the question. We were 
opposed to permitting the Empire Line, a creature of the 
Pennsylvania Railroad, to be building refineries, to become 
the owners of pipe-lines leading into the oil field and leading 
to the coast, without a contest, and we made it without regard 
to the Standard Oil Company or anybody else; but when we 
did determine to make it, I have no doubt we demanded of 
the Standard Oil Company during the contest to withdraw its 
shipments from the Pennsylvania." Mr. Flagler gave the 
following version of the affair to the Congressional Committee 
of 1888:— 

We made an agreement with the Empire Transportation Company for shipments 
over the Pennsylvania Railroad on behalf of the Pennsylvania interests, which were 
then owned by the Standard Oil Company, simply because there was no alternative. 
It was the only vehicle by which these Pittsburg refineries and the Philadelphia, re- 
fineries carried their crude oil over the Pennsylvania Railroad. There was no other 

* Report of the Special Committee on Railroads, New York Assembly, 1879. 

[185] 



THE HISTORY OF THE STANDARD OIL COMPANY 

medium by which business could be done over the Pennsylvania Railroad, except 
through the Empire Transportation Company, a subsidiary company of the Pennsyl- 
vania Railroad Company. The Empire Transportation Company was not only the 
owner of pipe-lines in the Oil Regions, and tank-cars on the Pennsylvania Railroad, 
but also of refineries at Philadelphia and New York, and to that extent were our 
competitors. We, having no interest whatever in transportation * naturally felt 
jealous of the Empire Transportation Company, and drew the attention of the north- 
ern lines. By that I mean the New York Central and the Erie railroads. With the 
peculiar position of the oil business on the Pennsylvania Railroad, their attention 
was called to this very soon after the Empire Transportation Company began the 
business of refining. The position taken by the two Northern trunk lines in their 
intercourse with the Pennsylvania Railroad, as was admitted by Mr. Cassatt in his 
testimony, and stated to me by the representatives of the two Northern roads, Mr. 
Vanderbilt and Mr. Jewett, was that it was unfair to them that the Pennsylvania 
Railroad did not divest itself of the manufacturing business. 

Backed by the Erie and Central, Mr. Rockefeller, in the 
spring of 1877, finally told Mr. Cassatt that he would no 
longer send any of his freight over the Pennsylvania unless 
the Empire gave up its refineries. The Pennsylvania refused 
to compel the Empire to this course. According to Mr. Potts's 
own story, the road was partially goaded to its decision by a 
demand for more rebates, which came from Mr. Rockefeller 
at about the time he pronounced his ultimatum on the Em- 
pire. "They swooped upon the railways," says Colonel Potts, 
"with a demand for a vast increase in their rebate. They 
threatened, they pleaded, it has been said they purchased — 
however that may be, they conquered. Minor officials in- 
trusted with the vast power of according secret rates conceded 
all they were asked to do, even to concealing from their supe- 
riors for months the real nature of their illegal agreements." 
Probably it was at this time that there took place the little 
scene between Mr. Vanderbilt and Mr. Rockefeller and his 
colleagues, of which the former told the Hepburn Commis- 

* The Standard Oil Company were extensive oil transporters at that time, as has 
been shown. 

[186] 



STRENGTHENING THE FOUNDATIONS 

sion in 1879. The Standard people were after more rebates. 
They affirmed other roads were giving larger rebates than 
Mr. Vanderbilt, and that their contract with him obliged 
him to give as much as anybody else did. 

"Gentlemen," he told them, "you cannot walk into this 
office and say we are bound by any contract to do business 
with you at any price that any other road does that is in com- 
petition with us; it is only on a fair competitive basis, a fair 
competition for business at a price that I consider will pay 
the company to do it." 

Soon after this interview, so rumour says, Mr. Vanderbilt 
sold the Standard stock he had acquired as a result of the 
deals made through the South Improvement Company. "I 
think they are smarter fellows than I am, a good deal," he 
told the commission, somewhat ruefully. "And if you come 
in contact with them I guess you will come to the same 
conclusion." 

Spurred on then by resentment at the demands for new 
rebates, as well as by the injustice of Mr. Rockefeller's 
demand that the Empire give up its refineries, the Penn- 
sylvania accepted the Standard's challenge, resolved to stand 
by the Empire, and henceforth to treat all its shippers alike. 
No sooner was its resolution announced in March, 1877, than 
all the freight of the Standard, amounting to fully sixty-five 
per cent, of the road's oil traffic, was taken away. An exciting 
situation, one of out-and-out war, developed, for the Empire 
at once entered on an energetic campaign to make good its 
loss by developing its own refineries, and by forming a loyal 
support among the independent oil men. Day and night the 
officers worked on their problem, and with growing success. 
When Mr. Rockefeller saw this he summoned his backers to 
action. The Erie and Central began to cut rates to entice away 
the independents. It is a sad reflection on both the honour and 
the foresight of the body of oil men who had been crying so 

[187] 



THE HISTORY OF THE STANDARD OIL COMPANY 

loudly for help, that as soon as the rates were cut on the Stand- 
ard lines many of them began to attempt to force the Pennsyl- 
vania to follow. "They found the opportunity for immediate 
profits by playing one belligerent against the other too tempt- 
ing to resist," says Colonel Potts. "We paid them large 
rebates," said Mr. Cassatt; "in fact, we took anything we 
could get for transporting their oil. In some cases we paid 
out in rebates more than the whole freight. I recollect one 
instance where we carried oil to New York for Mr. Ohlen, 
or someone he represented, I think at eight cents less than 
nothing. I do not say any large quantities, but oil was carried 
at that rate." 

While the railroads were waging this costly war the Stand- 
ard was carrying the fight into the refined market. The 
Empire had gone systematically to work to develop markets 
for the output of its own and of the independent refineries. 
Mr. Rockefeller's business was to prevent any such develop- 
ment. He was well equipped for the task by his system of 
"predatory competition," for in spite of the fact that Mr. 
Rockefeller claimed that underselling to drive a rival from 
a market was one of the evils he was called to cure, he did 
not hesitate to employ it himself. Indeed, he had long used 
his freedom to sell at any price he wished for the sake of 
driving a competitor out of the market with calculation and 
infinite patience. Other refiners burst into the market and 
undersold for a day; but when Mr. Rockefeller began to 
undersell, he kept it up day in and day out, week in and week 
out, month in and month out, until there was literally noth- 
ing left of his competitor. A former official of the Empire 
Transportation Company, who in 1877 t0 °k an active part 
in the war his company was waging against the Standard, 
once told the writer that in every town, North or South, East 
or West, in which they already had a market for their refined 
oil, or attempted to make one, they found a Standard agent 

[188] * 



STRENGTHENING THE FOUNDATIONS 

on hand ready to undersell. The Empire was not slow in 
underselling. It is very probable that in many cases it began 
it, for, as Mr. Cassatt says, "They endeavoured to injure us 
and our shippers all they could in that fight, and we did the 
same thing." 

In spite of the growing bitterness and cost of the contest, 
the Empire had no thought of yielding. Mr. Potts's hope was 
in a firm alliance with the independent oil men, many of the 
strongest of whom were rallying to his side. At the begin- 
ning of the fight he had very shrewdly enlisted in his plan 
one of the largest independent producers of the day, B. B. 
Campbell, of Butler. "Being a pleasure and a duty to me," 
says Mr. Campbell, "I entered into the service with all the 
zeal and power that I have. I made a contract with the 
Empire Line wherein I bound myself to give all my business 
to this line." At the same time Mr. Potts sought the help of 
the man who was generally accepted as the coolest, most 
intelligent, and trustworthy adviser in matters of transporta- 
tion the Oil Regions had, E. G. Patterson, of Titusville. 
Mr. Patterson was a practical railroad man, and an able and 
logical opponent of the rebate and "one shipper" systems. 
He had been prominent in the fight against the South 
Improvement Company, and since that time he had persist- 
ently urged the independents to wage war only on the practice 
of rebates — to refuse them themselves and to hold the rail- 
roads strictly to their duty in the matter. Several conferences 
were held, and finally, in the early summer, Mr. Potts read 
the two gentlemen a paper he had drawn up as a contract 
between the producers and the Empire. It speaks well for 
the fair-mindedness of Mr. Potts that when he read this docu- 
ment to Mr. Campbell and Mr. Patterson, both of whom 
were skilled in the ways of the transporter, they "accepted it 



in a moment." 



"It was made the duty of Mr. Patterson and myself to get 

[189] 



THE HISTORY OF THE STANDARD OIL COMPANY 

signatures of producers to this agreement," says Mr. Camp- 
bell, "in a sufficient amount to warrant the Pennsylvania road 
entering into a permanent agreement. The contract, I think, 
was for three years." The attempt to enlist a solid body of oil 
men in the scheme was at once set on foot, but hardly was it 
under way before troubles of most serious import came upon 
the Pennsylvania road. A great and general strike on all its 
branches tied up its traffic for weeks. In Pittsburg hundreds 
of thousands of dollars' worth of property were destroyed 
by a mob of railroad employees. It is not too much to say that 
in these troubles the Pennsylvania lost millions of dollars; 
it is certain that as a result of them the company that fall 
and the coming spring had to pass its' dividends for the first 
time since it commenced paying them, and that its stock fell 
to twenty-seven dollars a share (par being fifty dollars). 
Overwhelmed by the disasters, Mr. Scott and Mr. Cassatt felt 
that they could not afford any longer to sustain the Empire in 
its fight for the right to refine as well as transport oil. 

While the coffers of the Pennsylvania were empty, those 
of the Standard were literally bursting with profits; for the 
Standard, the winter before this fight came on, had carried 
to completion for the first time the work which it had been 
organised to accomplish, that is, it had put up the price of 
refined oil, in defiance of all laws of supply and demand, and 
held it up for nearly six months. The story of this dramatic 
commercial hold-up is told in the next chapter; it is enough 
for present purposes to say that in the winter of 1 876-1 877 
millions of gallons of oil were sold by Mr. Rockefeller and 
his partners at a profit of from fifteen to twenty-five cents a 
gallon. The curious can compute the profits ; they certainly ran 
into the multi-millions. A dividend of fifty per cent, was 
paid for the year following the scoop, and "there was plenty 
of money made to throw that dividend out twice over and 
make a profit," Samuel Andrews, one of the Standard's lead- 

[ 190] 



STRENGTHENING THE FOUNDATIONS 

ing men, told an Ohio investigating committee in 1879. The 
Standard then had a war budget big enough for any opposi- 
tion, and it is not to be wondered at that the Pennsylvania, 
knowing this and rinding its own treasury depleted, was ready 
to quit. 

It was August when Mr. Scott and Mr. Cassatt decided 
to give up the fight. Peace negotiations were at once instituted, 
Mr. Cassatt going to Cleveland to see Messrs. Rockefeller 
and Flagler, and Mr. Warden, who was visiting them there. 
Later, the same gentlemen met Mr. Scott and Mr. Cassatt at 
the St. George Hotel, in Philadelphia. "The subject of dis- 
cussion at these meetings," said Mr. Cassatt in 1879, when 
under examination, "was whether we could not make some 
contract or agreement with the Standard Oil Company by 
which this contest would cease. They insisted that the first 
condition of their coming back on our line to ship over our 
road must be that the Empire Transportation Company, 
which company represented us in the oil business, must cease 
the refining of oil in competition with them. The Empire 
Transportation Company objected to going out of the refin- 
ing business. The result of this objection Colonel Potts stated 
in 1888: "Our contract with the Pennsylvania road gave to 
them the option, at any time they saw proper, upon reason- 
able notice, of buying our entire plant; they exercised that 
option." "Was that at your request or desire?" the chairman 
asked the Colonel. "No, sir. It was at the request of the 
Pennsylvania road through their officials." The question then 
came up as to who should buy the plant of the Empire 
Transportation Company. "The Standard wanted us to do 
so," says Mr. Cassatt. "They wanted us to buy the pipe-lines v 
and cars ; we objected to buying the pipe-lines, and it resulted 

their buying them and the refining plants. The negoti- 
tions were carried on in Philadelphia, Mr. Rockefeller and 

r. Flagler mainly representing the Standard. A substantial 

[191] 



THE HISTORY OF THE STANDARD OIL COMPANY 

agreement was reached about the last of October. The agree- 
ment would have been probably perfected about that time 
except that the counsel for the Empire Line thought it was 
necessary that they should advertise the fact that they were 
going to sell their property, and have a meeting of their 
stockholders, and get their assent to the sale before the papers 
were finally signed." 

This meeting of which Mr. Cassatt speaks was held on 
October 17. Colonel Potts made a statement to the stock- 
holders, which he began by a brief review of the growth of the 
company from the point when twelve years before it had 
started as a new route charged with the duty of meeting 
formidable competitors. He pointed out that at the close of 
the twelfth year the company was the owner of a large fleet 
of lake vessels, of elevators and docks at the City of Erie, of 
improved piers in New York City, of nearly 5,000 cars, 
of over 500 miles of pipe-lines, of valuable interests in 
refineries, of all the appliances of a great business. In these 
twelve years, Colonel Potts told his stockholders, the organi- 
sation had collected more than one hundred million dollars, 
and in the last year their cars had moved over 30,000 
miles of railway. He explained to the stockholders the condi- 
tion of the oil business which had made it necessary, in his 
judgment, for the Empire Transportation Company to go 
into the refining business. It was done with the greatest reluc- 
tance, Colonel Potts declared, but it was done because he and 
his colleagues believed that there was no other way for them 
to save to the Pennsylvania road permanently the proportion 
of the oil traffic which they had acquired in the twelve years 
in which they had been in business. He reviewed, dispassion- 
ately, the circumstances which had led the Pennsylvania road 
to ask the company to give up its refineries. He stated his 
reasons for deciding that it was wiser for the Empire to 
resign its contracts with the Pennsylvania and go into liquida- 

[192] 



STRENGTHENING THE FOUNDATIONS 

tion than to submit to the demands of the Standard interests. 
Colonel Potts followed his statement by an abstract of the 
agreements which had been made between the Standard people 
and the Empire. By these agreements the Standard Oil Com- 
pany bought of the Empire Transportation Company their 
pipe-line interest for the sum of $1,094,805.56, their refining 
interests in New York and Philadelphia for the sum of $501,- 
652.78, $900,000 worth of Oil Tank Car Trust, and they also 
settled with outside refiners and paid for personal property 
to the extent of $900,000 more, making a total cash payment 
of $3,400,000. Two millions and a half of this money, Colonel 
Potts told the stockholders, would be paid that evening by 
certified checks if the agreements were ratified. "Not knowing 
what your action might be at this meeting," he concluded, "we 
are still in active business. We could not venture to do any- 
thing that would check our trade, that would repel customers, 
that would drive any of them away from us. We must be 
prepared if you said no to go right along with our full 
machinery under our contract, or under such modification of 
that as we could fight through. We could not stop moving 
a barrel of oil. We must be ready to take any offered to us; 
we must supply parties taking oil. There was nothing we could 
do but what was done; nothing was stopped, nothing is 
stopped, everything is going on just as vigorously at this 
moment through as wide an extent of country as ever it did, 
and it will continue to do so until after you take action, until 
after we get these securities or the money. That, we suppose, 
will be about six o'clock to-day, if you act favourably, and at 
that time we shall, if everything goes through, telegraph to 
every man in our service, and to the heads of departments 
what has been done, and at twelve o'clock to-night we shall 
cease to operate anything in the Empire Transportation 
Company." 
The stockholders accepted the proposition, and that night 

[ 193] 



THE HISTORY OF THE STANDARD OIL COMPANY 

at Colonel Potts's office on Girard Street, Philadelphia, Mr. 
Scott and Mr. Cassatt, of the Pennsylvania Railroad, Colonel 
Potts and two of his colleagues in the Empire, and two of the 
refiners with whom he was affiliated, met William Rocke- 
feller, Mr. Flagler, Mr. Warden, Mr. Lockhart, Charles 
Pratt, Jabez A. Bostwick, Daniel O'Day, and J. J. Vander- 
grift, and their counsel, and the papers and checks were 
were signed and passed, wiping out of existence a great busi- 
ness to which a body of the best transportation men the state 
of Pennsylvania has produced had given twelve years of their 
lives. After the meeting was over, there were sent out from 
Philadelphia to scores of employees of the Empire Trans- 
portation Company scattered throughout the state, tele- 
grams stating that at twelve o'clock that night the company 
would cease to exist. For twelve years the organisation had 
been doing a growing business. On the date of this telegram 
its operations were more extensive, its opportunities more 
promising, under fair play, than they had #er been before 
in its history. The band of men who had bflfk it up to such 
healthy success were not giving it up because they had lost 
faith in it, or because they believed there were larger opportu- 
nities for them in some other business; they were giving it 
up because they were compelled to, and probably men never 
went out of business in this country with a* deeper feeling of 
injustice than that of the officials* of the Empire Transporta- 
tion Company on October 17, 1877, when they sent out the 
telegrams which put their great creation into liquidation. 

The pipe-lines thus acquired were at once consolidated with 
the other Standard lines. Only a few independent lines, and 
only one of these of importance — the Columbia Conduit — 
now remained in the Oil Regions. This company had been 
doing business, since 1875, under the difficulties already de- 
scribed. Dr. Hostetter, the chief stockholder, had become 
heartily sick of the oil business and wanted to sell. He had 

[ 194] 



STRENGTHENING THE FOUNDATIONS 

approached the Empire Line, and there had been some negoti- 
ations. Then came the fall of the Empire and Dr. Hostetter 
sought the United Pipe Line. Intent on stopping every out- 
let of oil not under their control the Standard people bought 
the Columbia Conduit. By the end of the year the entire pipe- 
line system of the Oil Regions was in Mr. Rockefeller's 
hands. He was the only oil gatherer. Practically not a barrel 
of oil could get to a railroad without his consent. He had 
set out to be simply the only oil refiner in the country, but 
to achieve that purpose he had been obliged to make himself 
an oil transporter. In such unforseen paths do great ambi- 
tions lead men! 

The first effect of the downfall of the Empire was a new 
railroad pool. Indeed when it became evident that the Penn- 
sylvania would yield, the Erie, Central and the Standard had 
begun preparing a new adjustment, and the papers for 
this were ready to be signed on October 17, with those trans- 
ferring the pipe-line property. Never had there been an 
arrangement which gathered ujf so completely the oil outlets, 
for now the Baltimore and Ohio road came into a pool for the 
first time. Mr. Gajxett had always refused the advances of 
the other roads,« |hyhen he saw that the Columbia Con- 
duit Line, his cl r feeder, was sure to fall into Standard 
hands; when he blpin to suspect the Baltimore refiners were 
going into the combination, to realised that if he expected 
to keep an oil traffic he must join the other roads. The new 
pool, therefore, was between four roads. Sixty-three per cent, 
of the oil traffic was conceded to New York, and of the sixty- 
three per cent, going there the Pennsylvania road was to have 
twenty-one per cent. Thirty-seven per cent, of the traffic was 
to go to Philadelphia and Baltimore, and of this thirty-seven 
per cent, the Pennsylvania had twenty-six per cent. The Stand- 
ard guaranteed the road not less than 2,000,000 barrels a year, 
and if it failed to send that much over the road it was to pay 

[195] 



THE HISTORY OF THE STANDARD OIL COMPANY 

it a sum equal to the profits it would have realised upon the 
quantity in deficit. In return for this guarantee of quantity 
the Standard was to pay such rates as might be fixed from time 
to time by the four trunk lines (which rates it was under- 
stood should be so fixed by the trunk lines as to place 
them on a parity as to cost of transportation by competing 
lines), and it was to receive weekly a commission of ten 
per cent, on its shipments it controlled.* No commission 
was to be allowed any other shipper unless he should 
guarantee and furnish such a quantity of oil that after de- 
ducting any commission allowed, the road realised from 
it the same amount of profits as it did from the Standard 
trade. The points in the agreement were embodied in a letter 
from William Rockefeller to Mr. Scott. This letter and 
the answer declaring the arrangement to be satisfactory to the 
company are both dated October iy.-\ 

Four months later Mr. Rockefeller was able to take another 
step of great advantage. He was able to put into operation the 
system of drawbacks on other people's shipments which the 
South Improvement Company contracts had provided for, and 
which up to this point he seems not to have been securely 
enough placed to demand. There were no bones about the 
request now. Mr. O'Day, the general manager of the Ameri- 
can Transfer Company, a pipe-line principally in Clarion 
County, Pennsylvania, which, including its branches, was 
from eighty to ioo miles in length, a company now one 
of the constituents of the United Pipe Line, wrote to Mr. 
Cassatt: 

" I here repeat what I once stated to you, and which I wish you to receive and treat 
as strictly confidential, that we have been for many months receiving from the New 

* See Appendix, Number 27. Mr. Flagler's explanation of the commission of ten 
per cent, allowed the Standard Oil Company in 1877. 

t See Appendix, Number 28. Correspondence between William Rockefeller and 
Mr. Scott in October, 1877. 

[196] 



STRENGTHENING THE FOUNDATIONS 

York Central and Erie Railroads certain sums of money, in no instance less than twenty 
cents per barrel on every barrel of crude oil carried by each of these roads.'* Continuing, 
Mr. O'Day says: "Co-operating as we are doing with the Standard Oil Company and 
the trunk lines in every effort to secure for the railroads paying rates of freight on 
the oil they carry, I am constrained to say to you that in justice to the interests I 
represent we should receive from your company at least twenty cents on each barrel 
of crude oil you transport. ... In submitting this proposition I find that I should 
ask you to let this date from November I, 1877, but I am willing to accept as a 
compromise (which is to be regarded as strictly a private one between your company 
and ours) the payment by you of twenty cents per barrel on all crude oil shipments 
commencing with February 1, 1878."* 

Mr. Cassatt complied with Mr. O'Day's request. In a letter 
to the comptroller of the road he said that he had agreed to 
allow this commission after having seen the receipted bills, 
showing that the New York Central allowed them a commis- 
sion of thirty-five cents a barrel, and the Erie Railroad a 
commission of twenty cents a barrel on Bradford oil and thirty 
cents on all other oils. Thus the Standard Oil Company, 
through the American Transfer Company, received, in addi- 
tion to rebates on its own shipments, from twenty to thirty- 
five cents drawback a barrel on all crude oil which was sent 
over the trunk lines by other people as well as by itself. t 

The effect of this new concentration of power was imme- 
diate in all the refining centres of the country. Most of the 
Baltimore refiners, some eight in number, which up to this 
time had remained independent, seeing themselves in danger 
of losing their oil supply, were united at the end of 1877 into 
the Baltimore United Oil Company, with J. N. Camden at 
their head. Mr. Camden was president of the Camden Con- 
solidated Company of Parkersburg, West Virginia, a con- 
cern already in the Standard alliance, and he and his partners 
held the majority stock in the Baltimore concern. The method 

* See Appendix, Number 29. Correspondence between Mr. O'Day and Mr. Cassatt. 
f See Appendix, Number 30. Henry M. Flagler's testimony on the rebate paid to 
American Transfer Company. 

[ 197] 



THE HISTORY OF THE STANDARD OIL COMPANY 

of reaching the Baltimore independents who looked with dis- 
like or fear on the Standard was a familiar one: An officer 
of one of the concerns owned by the Standard Oil Company 
would approach the outsider who was feeling the pressure 
and propose a sale or a lease to himself personally. It was 
an escape, and it usually ended in the complete absorption of 
the plant by the Standard. A few of the Baltimore interests 
refused to go into the Baltimore United Oil Company. Among 
them was a woman, a widow, Mrs. Sylvia C. Hunt, who had 
conducted a successful refinery there for several years, and 
whose business ability and energy had been the admiration of 
all those with whom she had come in contact. Her interests 
had been particularly cherished by the Empire Line, "Mrs. 
Hunt's cars" being given precedence many a time by agents 
at Titusville or other shipping points who knew her story. 
In the summer of 1877 her works burned out. With a cour- 
age which was generally commented on at the time Mrs. 
Hunt at once rebuilt and in less than six months had her 
plant in running order. Then came the fall of the Empire 
Transportation Company, the sale of the Columbia Conduit 
Company, and the entrance of the Baltimore and Ohio into the 
Oil Pool. Every refiner in Baltimore knew what that meant, 
and the wise sold when Mr. Camden proposed it. Mrs. Hunt, 
however, did not want to sell. She distrusted the new company. 
Finally with many misgivings she leased for five years at 
$5,000 a year. It was less than half she had been making, so she 
claimed, and among her old friends there was much indigna- 
tion. Colonel Potts, indeed, in telling her story in his "Brief 
History of the Standard Oil Company," said: "It could fairly 
have been expected that something of chivalrous feeling would 
be inspired by the sight of this indomitable spirit who had 
wrought so noble a work against such great odds. But though 
fine sentiments and generous words find frequent exodus from 
the lips of the Standard managers, they are never seconded 

[198] 



STRENGTHENING THE FOUNDATIONS 

by generous deeds. They crushed her business and her spirit 
as remorselessly as they would have killed a dog." These are 
bitter words written when Colonel Potts was still smarting 
from his defeat. They were written, too, without reflection 
that Mrs. Hunt, if allowed to have all the oil she wanted, 
allowed equal rates, allowed to use her ability and experi- 
ence, allowed freedom to sell in the markets she had built up, 
would undoubtedly have increased her business. She would 
have profited by the high prices of refined oil which Mr. 
Rockefeller was taking all this trouble to secure. She might 
have grown a formidable competitor even, and disturbed the 
steadiness of the working of the great machine. Colonel Potts 
forgot that if the Great Purpose was realised nobody must 
do business except under Mr. Rockefeller's control. 

In New York City the new tariff and pooling arrange- 
ments caused the greatest uneasiness, for here was the largest 
group of prosperous independent refiners. They had all allied 
themselves with the Empire Transportation Company in 
the spring of 1877 when its fight with the Standard had begun, 
but they had been dropped immediately when peace negoti- 
ations were begun, and a letter of remonstrance they sent Mr. 
Scott at the time was never answered.* The experiences of 
several of these independents have been recorded in court 
testimony. One or two will suffice here. For instance, among 
the Eastern refiners was the firm of Denslow and Bush; their 
works were located in South Brooklyn. They had begun in 
a very small way in 1870, and by 1879 were doing a business 
of nearly 1,000 barrels of crude a day. They had trans- 
ported nearly all their oil by the Empire Line. After that 
line went out of business in October, 1877, the contract with 
Denslow and Bush was transferred to the Pennsylvania Rail- 
road Company. This contract terminated on the first day of 

* See Appendix, Number 31. Letter to President Scott of the Pennsylvania Rail- 
road from B. B. Campbell and E. G. Patterson. 

[ 199] 



THE HISTORY OF THE STANDARD OIL COMPANY 

May, 1878. Some time in March they received formal notice 
of its expiration, and solicited an interview with the officers 
of the Pennsylvania Railroad in order to make some arrange- 
ments for the further transportation of their oil. Mr. Cassatt 
named New York. The meeting was held at Mr. Denslow's 
office, 123 Pearl Street. Besides Mr. Bush, there were present 
to meet Mr. Cassatt, Messrs. Lombard, Gregory, King, H. C. 
Ohlen, and C. C. Burke, all independents. When Mr. Bush 
was under examination in the suit against the Pennsylvania 
Railroad in 1879 he gave an account of what happened at this 
interview : 

"We asked Mr. Cassatt what rate of freight we should have after the expiration of 
these contracts, whether we should have as low a rate of freight as the Standard Oil 
Company or any other shipper? He said, 'No/ We asked why. 'Well, in the first 
place, you can't ship as much oil as the Standard Oil Company.' 'Well, if we could 
ship as much oil' — I think Mr. Lombard put this question — 'would we then have 
the same rate?' He said, 'No.' 'Why?' 'Why, you could not keep the road satis- 
fied; it would make trouble.' And he remarked in connection with that, that the 
Standard Oil Company was the only party that could keep the roads harmonised or 
satisfied. He intimated, I believe, that each road had a certain percentage of the 
oil business, and they could divide that up and give each road its proportion, and 
in that way keep harmony, which we could not do. Right after that he made the 
remark that he thought that we ought to fix it up with the Standard; we ought to do 
something so as to all go on and make some money, and I think we gave him very 
distinctly to understand that we didn't propose to enter into any 'fix up' where 
we would lose our identity, or sell out, or be under anybody else's thumb. I believe 
that he went so far as to say that he would see the Standard, and do everything he 
could to bring that thing about. We told him very clearly that we didn't want any 
interference in that direction, and if there was anything to be done, we thought we 
were quite capable of doing it. The interview perhaps lasted an hour. There was 
a great deal of talk of one kind and another, but this is, I think, the substance. This 
interview was in March, 1878, 1 think. 

" Another interview at which I was present was either in June or July. Mr. Scott 
was present. This interview was brought about because we had been deprived, as we 
believed, of getting a sufficient number of cars we were entitled to. We had telegraphed 
or written to Mr. Cassatt — at least, Mr. Ohlen, our agent, had, on several occasions, 
and tried to get an interview, and finally this one was appointed, at which Mr. Scott 

[ 200 ] 



STRENGTHENING THE FOUNDATIONS 

would be present. When we arrived there we found Mr. Brundred, from Oil City; 
and Mr. Scott went on to state that he thought that we were receiving our fair propor- 
tion of cars. They tried to make us believe and feel, I suppose, that we were getting 
our due proportion, when for some considerable time previous to this we had not been 
able to do any business in advance; we could only do business from hand to mouth. 
We could not sell any refined oil unless we absolutely had the crude oil in our posses- 
sion in New York, and Mr. Lombard, one of our number, had sold a cargo of crude 
oil, I think, of 9,000 barrels, and Denslow and Bush absolutely stopped their refinery 
for three weeks consequently, in order to let theiroil goto Ayres and Lombard to finish 
their vessel, because they would only get three or four cars a day; and we stopped our 
place for three weeks to give them our crude oil, all we could give — our proportion — 
in order to lift them out and get their vessel cleared. After trying to impress upon us 
that we were getting our proportion of cars, we asked Mr. Scott substantially the 
same question we asked Mr. Cassatt in New York, whether we could have, if there 
was any means by which we could have, the same rate of freight as other shippers 
got, and he said flatly, 'No'; and we asked him then if we shipped the same amount 
of oil as the Standard, and he said, 'No/ and gave the same reasons Mr. Cassatt 
had in New York, that the Standard Oil Company were the only parties that could 
keep peace among the roads. We stated to Mr. Scott that we would like to know 
to what extent we would be discriminated against, because we wanted to know what 
disadvantage we would have to work under. And we went away very much dissatisfied. 
All the information we got on that point was from Mr. Cassatt in New York, when 
he stated that the discrimination would be larger on a high rate of freight than on a 
low rate of freight, which led us to infer that it was a percentage discrimination. That 
is all the point that I recollect we ever got as to the amount of the commission. We 
told Mr. Scott that if they hadn't sufficient cars on their road we would like to put some 
on, and he told us flatly that they had just bought out one line and they would not 
allow another one to be put on; that if they hadn't cars enough they would build them. 
He seemed to show considerable feeling that afternoon, and he said : 'Well, you have 
cost us in fighting for you now a million dollars' (or a million and a half, something 
like that — a very large sum), 'and we don't propose to go into another fight.' " * 

Strange as it may seem there were not only men in the refin- 
ing business who were willing to fight under these conditions, 
there were men among the very ones who had succumbed at 
the opening of the Standard's onslaught who were ready to 
try the business again. Among these was William Hark- 

* Commonwealth of Pennsylvania vs. Pennsylvania Railroad, United Pipe Lines, 
etc. 

[20I] 



THE HISTORY OF THE STANDARD OIL COMPANY 

ness, whose experience up to 1876 was related in the preceding 
chapter. Mr. Harkness's next experience in the oil business 
was related to the same committee as that already mentioned: 

"When I was compelled to succumb," he said, "I thought it was only tempo- I 
rarily; that the time would come when I could go into the business I was devoted to. j| 
We systematised all our accounts and knew where the weak points were. I was in 1 
love with the business. I selected a site near three railroads and the river. I took I 
a run across the water — I was tired and discouraged and used up in 1876, and was j 
gone three or four months. I came back refreshed and ready for work, and had the j 
plans and specifications and estimates made for a refinery that would handle 10,000 I 
barrels of oil a day, right on this hundred acres of land. I believed the time had I 
arrived when the Pennsylvania Railroad would see their true interest as common I 
carriers, and the interest of their stockholders and the business interest of the city I 
of Philadelphia, and I took those plans, specifications, and estimates, and I called I 
on Mr. Roberts, president of the Pennsylvania Railroad Company. I had consulted I 
one or two other gentlemen, whose advice was worth having, whether it would be ] 
worth my while to go to see President Roberts. I went there and laid the plans before I 
him, and told him I wanted to build a refinery of 10,000 barrels capacity a day. I 
was almost on my knees begging him to allow me to do that. He said; 'What is it 
you want?' I said; 'I simply ask to be put upon an equality with everybody else, 
and especially the Standard Oil Company.' I said; 'I want you to agree with me 
that you will give me transportation of crude oil as low as you give it to the Standard 
Oil Company or anybody else for ten years, and then I will give you a written assurance 
that I will do this refining of 10,000 barrels of oil a day for ten years.' I asked him 
if that was not an honest position for us to be in; I, as a manufacturer, and he, the 
president of a railroad. Mr. Roberts said there was a great deal of force in what I 
said, but he could not go into any written assurance. He said he would not go into any 
such agreement, and I saw Mr. Cassatt. He said in his frank way; 'That is not prac- 
ticable, and you know the reason why.'" 

As this work of absorption went on steadily, persistently, 
the superstitious fear of resistance to proposals to lease or 
sell which came from parties known or suspected to be work- 
ing in harmony with the Standard Oil Company, which had 
been strong in 1875, g re w almost insuperable. In Cleveland 
this was particularly true. A proposal from Mr. Rockefeller 
was certainly regarded popularly as little better than a com- 
mand to "stand and deliver." "The coal oil business belongs 

[ 2 ° 2 ] 



STRENGTHENING THE FOUNDATIONS 

to us," Mr. Rockefeller had told Mr. Morehouse. "We have 
facilities; we must have it. Any concern that starts in business 
we have sufficient money laid aside to wipe out"* — and peo- 
ple believed him! The feeling is admirably shown in a remark- 
able case still quoted in Cleveland — and which belongs to 
the same period as the foregoing cases, 1878 — a case which 
took the deeper hold on the public sympathy because the 
contestant was a woman, the widow of one of the first refiners 
of the town, a Mr. B- , who had begun refining in Cleve- 
land in i860. Mr. B 's principal business was the manu- 
facture of lubricating oil. Now at the start the Standard 
Oil Company handled only illuminating oil, and accordingly 

a contract was made between the two parties that Mr. B 

should sell to Mr. Rockefeller his refined oil, and that the 
Standard Oil Company should let the lubricating business 
in Cleveland alone. This was the status when in 1874 Mr. 

B died. What happened afterwards has been told in full 

in affidavits made in i88o,t and they shall tell the story; the 
only change made in the documents being to transfer them 
for the sake of clarity from the legal third person to the 
first, and to condense them on account of space. 

Mrs. B -s story as told in her affidavit is as follows: 

" My husband having contracted a debt not long prior to his death for the first time 
in his life, I, for the interest of my fatherless children, as well as myself, thought it 
my duty to endeavour to continue the business, and accordingly took $92,000 of the 

stock of the B Oil Company and afterwards reduced it to $72,000 or $75,000, 

the whole stock of the company being $100,000, and continued business from that 
time until November, 1878, making handsome profits out of the business during 

perhaps the hardest years of the time since Mr. B had commenced. Some time 

in November, 1878, the Standard Oil Company sent a man to me by the name of 
Peter S. Jennings, who had been engaged in the refining business and had sold out 

* Testimony of Charles T. Morehouse before the Special Committee on Railroads, 
New York Assembly, 1879. 

t In the case of the Standard Oil Company vs. William C. Scofield, et al., in the 
Court of Common Pleas, Cuyahoga County, Ohio. 

[203] 



THE HISTORY OF THE STANDARD OIL COMPANY 

to the Standard Oil Company. I told Mr. Jennings that I would carry on no negotia- 
tions with him whatever, but that if the Standard Oil Company desired to buy my 
stock I must transact the business with its principal officer, Mr. Rockefeller. Mr. 
Jennings, as representing the Standard Oil Company, told me that the president of the 
company, Mr. Rockefeller, said that said company would control the refining business, 
and that he hoped it could be done in one or two years; but if not, it would be done, 
anyway, if it took ten years to do it. 

"After two or three days' delay Mr. Rockefeller called upon me at my residence 
to talk over the negotiation with regard to the purchase of my stock. I told Mr. 

Rockefeller that I realised the fact that the B Oil Company was entirely in the 

power of the Standard Oil Company, and that all I could do would be to appeal to 
his honour as a gentleman and to his sympathy to do with me the best that he could; 
and I begged of him to consider his wife in my position — that I had been left with 
this business and with my fatherless children, and with a large indebtedness that Mr. 

B had just contracted for the first time in his life; that I felt that I could not do 

without the income arising from this business, and that I had taken it up and gone on 
and been successful, and I was left with it in the hardest years since my husband 
commenced the business. He said he was aware of what I had done, and that his wife 
could never have accomplished so much. I called his attention to the contract that 
my husband had made with him in relation to carbon oil, whereby the Standard Oil 
Company agreed not to touch the lubricating branch of the trade carried on by my 
husband, and reminded him that I had held to that contract rigidly, at a great loss 

to the B Oil Company, but did so because I regarded it a matter of honour to 

live up to it. I told him that I had become alarmed because the Standard Oil Company 
was getting control of all the refineries in the country, and that I feared that the said 
Standard Oil Company would go into the lubricating trade, and reminded him that 
he had sent me word that the Standard Oil Company would not interfere with that 
branch of the trade. He promised, with tears in his eyes, that he would stand by me 
in this transaction, and that I should not be wronged; and he told me that, in case the 
sale was made, I might retain whatever amount of the stock of the B Oil Com- 
pany I desired, his object appearing to be only to get the controlling stock of the com- 
pany. He said that while the negotiations were pending he would come and see me, 
and I thought that his feelings were such on the subject that I could trust him and 
that he would deal honourably by me. 

" Seeing that I was compelled to sell out, I wanted the Standard Oil Company to 
make me a proposition, and endeavoured to get them to do so, but they would not 

make a proposition. I then made a proposition that the whole stock of the B Oil 

Company with accrued dividends should be sold to said Standard Oil Company for 
$200,000, which was, in fact, much below what the stock ought to have been sold for; 
but they ridiculed the amount, and at last offered me only $79,000, not including 

[204] 



STRENGTHENING THE FOUNDATIONS 

accounts, and required :hat each stockholder in the B Oil Company should 

enter into a bond that within the period of ten years he or she would not directly or 
indirectly engage in or in any way be concerned in the refining, manufacturing, pro- 
ducing, piping, or dealing in petroleum or in any of its products within the county 
of Cuyahoga and state of Ohio, nor at any other place whatever. 

"Seeing that the property had to go, I asked that I might, according to the under- 
standing with the president of the company, retain $15,000 of my stock, but the reply 
to this request was; 'No outsiders can have any interest in this concern; the Standard 
Oil Company has "dallied" as long as it will over this matter; it must be settled up 
to-day or go,' and they insisted upon my signing the bond above referred to. 

"The promises made by Mr. Rockefeller, president of the Standard Oil Company, 
were none of them fulfilled; he neither allowed me to retain any portion of my stock, 
nor did he in any way assist me in my negotiations for the sale of my stock; but, on 
the contrary, was largely instrumental in my being obliged to sell the property much 
below its true value, and requiring me to enter into the oppressive bond above 
referred to. 

"After the arrangements for the sale of the refinery and of my stock were fully com- 
pleted and the property had been sold by myself and the other stockholders, and 
after I had made arrangements for the disposition of my money, I received a note 
from Mr. Rockefeller, in reply to one that I had written to him threatening to make 
the transaction public, saying that he would give me back the business as it stood, 
or that I might retain stock if I wished to, but this was after the entire transaction 
was closed, and such arrangements had been made for my money that I could not 
then conveniently enter into it; and I was so indignant over the offer being made at 
that late day, after my request for the stock having been made at the proper time, 
that I threw the letter into the fire and paid no further attention to it."* 

The letter which Mrs. B destroyed was included in 

the affidavit in which Mr. Rockefeller answered Mrs. B 's 

statement. It reads: 

"November 13, 1878. Dear Madam: I have held your note of nth inst., received 
yesterday, until to-day, as I wished to thoroughly review every point connected with 

the negotiations for the purchase of the stock of the B Oil Company, to satisfy 

myself as to whether I had unwittingly done anything whereby you could have any 

* Coupled with Mrs. B 's affidavit was one of the company's bookkeeper's 

testifying that the business had been paying an annual net income of #30,000 to #40,000 
when the sale to the Standard was made for #79,000, and another from the cashier, 

who had been present at most of the interviews between Mrs. B and the Standard 

agents, and who corroborates her statements in every particular. 

[205] 



THE HISTORY OF THE STANDARD ( IL COMPANY 

right to feel injured. It is true that in the interview I had with you I suggested that 

if you desired to do so, you could retain an interest in the business of the B Oil 

Company, by keeping some number of its shares, and then I understood you to say 
that if you sold out you wished to go entirely out of the business. That being my 
understanding, our arrangements were made in case you concluded to make the sale that 
precluded any other interests being represented, and therefore, when you did make 
the inquiry as to your taking some of the stock, our answer was given in accordance 
with the facts noted above, but not at all in the spirit in which you refer to the refusal 
in your note. In regard to the reference that you make as to my permitting the business 

of the B Oil Company to be taken from you, I say that in this, as all else that you 

have written in your letter of nth inst., you do me most grievous wrong. It was of 

but little moment to the interests represented by me whether the business of the B 

Oil Company was purchased or not. I believe that it was for your interest to make the 
sale, and am entirely candid in this statement, and beg to call your attention to the time, 
some two years ago, when you consulted Mr. Flagler and myself as to selling out 
your interests to Mr. Rose, at which time you were desirous of selling at considerably 
less price, and upon time, than you have now received in cash, and which sale you 
would have been glad to have closed if you could have obtained satisfactory security 
for the deferred payments. As to the price paid for the property, it is certainly three 
times greater than the cost at which we could construct equal or better facilities; but 
wishing to take a liberal view of it, I urged the proposal of paying the #60,000, which 
was thought much too high by some of our parties. I believe that if you would recon- 
sider what you have written in your letter, to which this is a reply, you must admit 
having done me great injustice, and I am satisfied to await upon innate sense of right 
for such admission. However, in view of what seems your present feelings, I now offer 
to restore to you the purchase made by us, you simply returning the amount of money 
which we have invested and leaving us as though no purchase had been made. Should 
you not desire to accept this proposal, I offer to you one hundred, two hundred, or 
three hundred shares of the stock at the same price that we paid for the same, with 
this addition, that we keep the property we are under engagement to pay into the 

treasury of the B Oil Company, an amount which, added to the amount already 

paid, would make a total of #100,000, and thereby make the shares #100 each. 

"That you may not be compelled to hastily come to conclusion, I will leave open 
for three days these propositions for your acceptance or declination, and in the mean- 
time believe me, Yours very truly, 

" John D. Rockefeller." 

Mr. Rockefeller says further in the affidavit from which 
this letter is drawn: "It is not true that I made any promises 
that I did not keep in the letter and spirit, and it is not true 

[206] 



STRENGTHENING THE FOUNDATIONS 

that I was instrumental to any degree in her being obliged to 
sell the property much below its true value, and I aver that 
she was not obliged to sell out, and that such was a voluntary 
one upon her part and for a sum far in excess of its value; 
and that the construction which was purchased of her could 
be replaced for a sum not exceeding $20,000." * 

It is probably true, as Mr. Rockefeller states, that he could 

have reproduced Mrs. B 's plant for $20,000; but the 

plant was but a small part of her assets. She owned one of the 
oldest lubricating oil refineries in the country, one with an 
enviable reputation for good work and fair dealing, and with 
a trade that had been paying an annual net income of from 
$30,000 to $40,000. It was this income for which Mr. Rocke- 
feller paid $79,000; this income with the old and honourable 

name of the B Oil Company, with not a few stills and 

tanks and agitators. 

It is undoubtedly true, as Mr. Rockefeller avers, that Mrs. 

B was not obliged to sell out, but the fate of those who 

in this period of absorption refused to sell was before her 
eyes. She had seen the twenty Cleveland refineries fall into 
Mr. Rockefeller's hands in 1872. She had watched the steady 
collapse of the independents in all the refining centres. She 
had seen every effort to preserve an individual business 
thwarted. Rightly or wrongly she had come to believe that a 
refusal to sell meant a fight with Mr. Rockefeller, that a fight 
meant ultimately defeat, and she gave up her business to 
avoid ruin. 

* Mr. Rockefellers statements are supported by affidavits from several members 
of the firm. 



[207] 



CHAPTER SEVEN 
THE CRISIS OF 1878 

A RISE IN OIL— A BLOCKADE IN EXPORTS— PRODUCERS DO NOT GET THEIR 
SHARE OF THE PROFITS— THEY SECRETLY ORGANISE THE PETROLEUM PRO- 
DUCERS' UNION AND PROMISE TO SUPPORT PROPOSED INDEPENDENT PIPE- 
LINES—ANOTHER INTERSTATE COMMERCE BILL DEFEATED AT WASHINGTON 
—"IMMEDIATE SHIPMENT "—INDEPENDENTS HAVE TROUBLE GETTING 
CARS— RIOTS THREATENED— APPEAL TO GOVERNOR HARTRANFT— SUITS 
BROUGHT AGAINST UNITED PIPE-LINES, PENNSYLVANIA RAILROAD AND 
OTHERS— INVESTIGATIONS PRECIPITATED IN OTHER STATES— THE HEP- 
BURN COMMISSION AND THE OHIO INVESTIGATION— EVIDENCE THAT THE 
STANDARD IS A CONTINUATION OF THE SOUTH IMPROVEMENT COMPANY- 
PRODUCERS FINALLY DECIDE TO PROCEED AGAINST STANDARD OFFICIALS- 
ROCKEFELLER AND EIGHT OF HIS ASSOCIATES INDICTED FOR CONSPIRACY. 

IT was clear enough by the opening of 1878 that Mr. Rocke- 
feller need no longer fear any serious trouble from the refin- 
ing element. To be sure there were scattered concerns still 
holding out and some of them doing very well ; but his latest 
move had put him in a position to cut off or at least seriously 
to interfere with the very raw material in which they worked. 
It was hardly to be expected after the defeat of the Penn- 
sylvania that any railroad would be rash enough to combine 
with even a strong group of refiners. As for independent pipe- 
lines, there were so many ways of "discouraging" their build- 
ing that it did not seem probable that any one would ever go 
far. It was only a matter of time, then, when all remaining 
outside refiners must come into his fold or die. Mr. Rocke- 
feller's path would now have been smooth had it not been 
for the oil producers. But the oil producers, naturally his 

[208 ] 



THE CRISIS OF 1878 

enemy, he being the buyer and they the seller, had become 
in the six years before Mr. Rockefeller had made himself the 
only gatherer of their oil, irreconcilable opponents of what- 
ever he might do. The South Improvement Company they 
regarded rightly enough as devised to control the price of 
their product, and that scheme they wrongfully laid entirely 
at Mr. Rockefeller's door. Mr. Rockefeller had been only 
one of the originators of the South Improvement Company, 
but the fact that he had become later practically its only 
supporter, that he was the only one who had profited by it, 
and that he had turned his Cleveland plant into a machine 
for carrying out its provisions, had caused the oil country 
to fix on him the entire responsibility. Then the oil men's 
experience with Mr. Rockefeller in 1873 na d been unfor- 
tunate. They charged the failure of their alliance to his 
duplicity. There is no doubt that Mr. Rockefeller played a 
shrewd and false game with the oil men in 1873, but the 
failure of their alliance was their own fault. They did not 
hold together — they failed to limit their production as they 
agreed, they suspected one another, and at a moment, when, 
if they had been as patient and wise as their great opponent 
they would have had the game in their own hands, and him at 
their feet, as he had been in 1872, for the sake of immediate 
returns, they abandoned some of the best features of their 
organisation, and allied themselves with a man they distrust- 
ed. When that alliance failed they threw on Mr. Rocke- 
feller's shoulders a blame which they should have taken on 
their own. 

Another very real cause for their anxiety and dislike was 
that as the refiners' alliance progressed the refiners made a 
much larger share of the profits than the producers thought fair. 
The abandoning of their alliance in 1873 had of course put 
an end to their measures for limiting production and for hold- 
ing over-production until it could be sold at the prices they 

[209] 



THE HISTORY OF THE STANDARD OIL COMPANY 

thought profitable. The drill had gone on merrily through 
1873, 1874, and 1875, regardless of consumption or prices. 
By the end of 1874 there were over three and a half million 
barrels of oil in stock, more than twice what there had ever 
been before. Production was well to a million barrels a month 
and prices that year averaged but $1.15 a barrel. For men 
who considered three dollars a starvation price this was indeed 
hard luck. Things looked better by the end of 1875, for pro- 
duction was falling off. By March, 1876, stocks had been so 
reduced that there was strong confidence that the price of 
crude oil must advance. By June the Oil City Derrick began 
to prophesy "three-dollar oil" and to advise oil men to hold 
crude for that price. In August three dollars was reached in 
the Oil City exchange. It had been nearly four years since that 
price had been paid for oil, and the day the point was 
reached (August 25) the brokers fairly went mad. They 
jumped on their chairs, threw up their hats, beat one an- 
other on the back, while the spectators in the crowded gal- 
leries, most of them speculators, yelled in sympathy. Before 
six o'clock that day oil reached $3.1 ij4- Nobody thought 
of stopping because it was supper time. The exchange was 
open until nearly midnight, prices booming on to $3.17^. 
It seemed like old times in the Oil Region — the good old 
flush times when people made a fortune one day and threw it 
away the next! 

Of course refined oil went up steadily with crude. Refined 
reached 21^ cents in New York the day of this boom at Oil 
City. The day following the rise was one of the most exciting 
the oil exchange had ever seen. "Never before," declared the 
Derrick in its report, "was so much business done. From 
early in the morning until ten o'clock at night the exchange 
was crowded by frantic speculators. Their awful excitement 
was clear from their blanched faces and wild voices. Fully 
800,000 barrels of oil exchanged hands that day, the advance 

[210] 



THE CRISIS OF 1878 

between the time the exchange opened and its close was over 
fifty-five cents. Refined in New York advanced in accordance 
with the market on the creek, closing at twenty-four cents. 
This went on for several days, when a new element in the 
situation began to force itself on the oil men's attention. One 
of the chief reasons on which they based their confidence in 
high prices for crude oil was the fact that the foreigners were 
short of refined oil. It was the custom then, as now, for export- 
ers to buy their oil for the winter European trade in the late 
summer and early fall. When the boom began the harbour at 
New York was beginning to fill up with ships for cargoes. 
But to the consternation of the oil men intent on keeping up 
the boom, the exporters were refusing to buy. They were 
declaring the price to which refined had risen to be out of 
proportion to the price of crude. More, they declared the 
latter a speculative price — only once, they argued, had it 
touched four dollars, and the refiners were not buying at 
that price for manufacture. They were holding refined too 
high. It was early in September when the realisation came 
upon the Oil Regions that a new element was in the problem 
— a veritable blockade in exports. As the days went on they 
saw that this was no temporary affair. They saw that Mr. 
Rockefeller's combination was at last carrying out just what 
it had been organised to do — forcing the price it wanted for 
refined. Day after day refined was held at twenty-six cents. 
Day after day the exporters refused to buy. It was not until 
the end of September, in fact, that they began to yield — as it 
was inevitable they should do, for the game was certainly 
in the hands of the refiners, and Europe had to have its light. 
The exporters began to see too that if they held off longer they 
might have to pay higher prices, for it was rumoured that 
the Standard Combination was shutting down its factories, 
literally making refined scarce, while crude oil was piling 
up in Pennsylvania! 

[an] 



THE HISTORY OF THE STANDARD OIL COMPANY 

With the yielding of the exporter exactly what they feared 
occurred, the price was raised! The exporters balked again. 
The matter began to attract public attention. The New York 
Herald was particularly active in airing the situation and 
did not hesitate to denounce it as a "Petroleum Plot." The 
leaders were interviewed, among them Mr. Rockefeller. Mr. 
Rockefeller still held to his theory that to make oil dear was 
worthy of public approval. They had aimed to control the 
price of oil in a perfectly legitimate way, he told the Herald 
reporter, and the exporters would have to yield to their prices. 
By the end of October New York harbour was full of vessels 
— a mute protest against the corner — and it was not until 
November that the exporters fully gave in and began to take 
all the oil they could get at prices asked, which ranged from 
twenty-six to thirty- five cents. And these prices were held 
all through the winter of 1876-77, up to February 22. They 
were held regardless of the price of crude, f< , do their ut- 
most, the producers could not keep their oil lp to the corre- 
sponding price of refined. According to the scale of relative 
prices then accepted, twenty-six cents a gallon for refined 
meant five dollars a barrel for crude, yet there was not a month 
in the entire period of this hold-up that crude averaged that 
price. In December, when the average price of refined was 
29^ cents, crude was but $3.78^ a barrel. The producers 
held meetings and passed resolutions, cursed the refiners and 
talked of building independent refineries, filled the columns 
of the Derrick with open letters advocating a shut-down, an 
alliance of their own, restrictive legislation, an oil men's 
railway, and what was more to the point some of them sup- 
ported, with more or less fidelity, the efforts to build up 
counter movements noted in the last chapter: the Columbia 
Conduit Line, the seaboard pipe-line, and especially the 
alliance with the Empire Transportation Company, attempted 
in the spring of 1877. There seemed more hope in this last 

[212] 




WOODEN TANKS FOR STORING OIL 



I 








^J / v ~ J 



RAILROAD TERMINAL OF AN EARLY PIPE LINE 



1> 



1, 



THE CRISIS OF 1878 

combination than in any other movement, for they had faith in 
Colonel Potts, and besides they were accustomed to seeing the 
Pennsylvania Railroad get what it wanted. The defeat of the 
Pennsylvania was therefore the heavier blow. Indeed, the 
news of the sale of the Empire pipe-lines to the Standard was 
like the sounding of the tocsin in the angry and baffled Oil 
Regions. It revived the spirit of 1872. But it was the spirit 
of 1872 with new dignity and a discretion such as had never 
been before seen in the blatant region. In every town from 
McKean County southwest to Butler the oil towns hastened 
to organise themselves into a secret society. Little by little 
it came out that a Producers' Union had been organised. From 
all that could be learned it looked very much as if the Petro- 
leum Producers' Union had come into existence to do business. 
On November 21, 1877, the first meeting of the new organisa- 
tion was held, "the Petroleum Parliament" or "Congress" it 
was called. This Congress, which met in Titusville, was com- 
posed of 172 delegates. It was claimed that it represented at 
least 2,000 oil producers, and not less than seventy-five 
millions in money. It is certain it included the representative 
men of the Oil Regions, those to whose daring, hard work, 
and energy the discovery and development of the oil fields, 
as they were known at that time, were entirely due. 

For four days the Congress was in session, and it is a 
remarkable comment on the seriousness with which it had 
undertaken its work that, although reporters from all parts 
of the country interested in oil were present, nothing leaked 
out. In December a second session of four days was held in 
Titusville, but no announcement of what was doing was made 
to the press. Indeed, it was only as lines of action developed 
that the public became familiar with what the producers had 

Iesolved on in the days of secret session which they had held. 
Their resolutions had been eminently wise and they under- 
00k their support vigorously and intelligently. First and 
[213] 






THE HISTORY OF THE STANDARD OIL COMPANY 

foremost they resolved to stand by all efforts to secure an out- 
let to the seaboard independent of the Standard and the allied 
railroads. Two enterprises were put before them at once. The 
first was what was known as the Equitable Petroleum Com- 
pany, an organisation started by one of the most resourceful 
and active independent men in the oil country, one of whom 
we are to hear more, Lewis Emery, Jr. This company, in 
which some 200 oil producers in the Bradford field had 
taken stock, proposed to lay a pipe-line to Buffalo and to 
ship their oil thence by the Erie Canal. They had acquired a 
right of way to Buffalo and had capital pledged to carry out 
the project. The second enterprise to come before the newly 
formed union was much more ambitious. It was nothing less 
than a revival of Mr. Harley's enterprise which had attracted 
so much attention in 1876. It was revived now by the three 
men who had been operating the Columbia Conduit Line 
under a lease — Messrs. Benson, McKelvy and Hopkins, who 
had been set free by the sale of that property to the Standard. 
Their experience with the pipe-line business had convinced 
them it was one of the most lucrative departments of the oif 
industry. They believed too that oil could be pumped over 
the mountains, and no sooner were they free than they took 
up Mr. Harley's old idea and engaged the same engineer 
he had brought into the enterprise, General Herman Haupt, 
to survey a route from Brady's Bend on the Allegheny 
River to Baltimore, Maryland — a distance of 235 miles. To 
both of these projects the General Council of the Union gave 
promise of support. 

The demand for interstate commerce legislation was re- 
newed at once by the Union, and in December E. G. Patter- 
son, the head of the committee having the matter in hand, pre- 
pared the first draft of an act which was put in formal shap< 
by George B. Hibbard, of Buffalo, counsel employed by thi 
Union for this purpose. Mr. Hibbard also prepared a memo- 

[214] 



THE CRISIS OF 1878 

randum of the law on the subject. The bill prepared by Mr. 
Patterson and Mr. Hibbard was introduced into the House 
of Representatives in May, 1878, by Lewis F. Watson, whose 
home was in Warren County, Pennsylvania. It was called 
into committee and came out as the Regan bill and as such 
was passed at the end of the year by the House, but only to 
be smothered later in the Senate. At the same time that the 
effort was going in Washington for relief the Legislature of 
Pennsylvania was being besieged again for a free pipe-line 
bill and an anti-discrimination bill. Both of these projects 
failed, and the committee having them in charge said bitterly 
in its report to the Union: "How well we have succeeded 
at Harrisburg you all know. It would be in vain for your 
committee to describe the efforts of the Council in this direc- 
tion. It has been simply a history of failure and disgrace. If 
it has taught us anything, it is that our present law-makers, 
as a body, are ignorant, corrupt and unprincipled; that the 
majority of them are, directly or indirectly, under the control 
of the very monopolies against whose acts we have been seek- 
ing relief. . . . There has been invented by the Standard Oil 
Company no argument or assertion, however false or ridicu- 
lous, which has not found a man in the Pennsylvania Legisla- 
ture mean enough to become its champion." 

On every side indeed the producers hastened to protect 
themselves against the Lord of the Oil Regions, as Mr. Rocke- 
feller, not inaptly, was called, on the completion of his pipe- 
line monopoly. That they were not merely alarmists in think- 
ing that they must do something to protect their interests was 
demonstrated sooner than was anticipated. The demonstra- 
tion was hurried by an unforeseen and difficult situation — a 
great outpouring of oil in a new field — the Bradford or 
Northern Field in McKean County, Pennsylvania. About the 
time that Mr. Rockefeller's lordship was realised it became 
certain that a deposit of oil had been discovered which was 

[215] 



THE HISTORY OF THE STANDARD OIL COMPANY 
going to lead soon to a production vastly in excess of the con- 
sumption, as well as in excess of the then existing facilities 
for gathering and storing oil. If Mr. Rockefeller wished to 
keep his monopoly he must, it was evident, enter upon a cam- | 
paign of expansion calling for an immense expenditure of 
energy and money. He must lay pipes in a hundred directions 
to get the output of new wells ; he must build tanks holding 
thousands of barrels to receive the oil. And all of this must 
be done quickly if rivals were to be kept out of the way. 
There was no hesitation on the part of the United Pipe Lines. 
One of the greatest construction feats the country has ever 
seen was put through in the years 1878, 1879 and 1880 in the 
Bradford oil field by the Standard interests. It was a wonder- 
ful illustration of the surpassing intelligence, energy and 
courage with which the Standard Oil Company attacks its 
problems. But while it was putting through this feat it insti- 
tuted a policy toward the producers which was regarded by 
them as tyrannical and unjustifiable. The first manoeuvre in 
this new policy hit the producer in a very tender spot, for it 
concerned the price he was to receive for oil. 

The method which prevailed at the time in handling and 
buying and selling oil was this: At the request of the well 
owner connected with a pipe-line his oil was run and credited 
to him in the pipe-line office. Here he could hold it as long 
as he wished by paying a storage charge. If he wished to sell 
his "credit balance," as oil to his account was called, he sim- 
ply gave the buyer an order on the line for the oil, and it was 
tranferred to the account of the new buyer. The pipe-lines 
frequently had hundreds of thousands of barrels of oil in 
hand, and they traded with this oil as banks do with their 
deposits — that is, they issued certificates for each 1,000 barrels 
of oil on hand, and these certificates were negotiable like any 
other paper. Now the United Pipe Lines acknowledged itself 
a common carrier, and so was obliged to discharge the duty 

[216] ' 



THE CRISIS OF 1878 

of collecting oil on demand, or at least within a reasonable 
time after the demand of its patrons. 

But in December, 1877, after the monopoly was completed, 
they refused to discharge their obligations in the customary 
way. On the plea that they had not sufficient tankage to carry 
oil in the Bradford field, they issued an order that no oil 
would be run in that district for any one unless it was sold for 
"immediate shipment" — that is, no oil would be taken to 
hold for storage ; it would be taken for shipping only. At the 
same time the Standard buyer, J. A. Bostwick, decreed that 
henceforth no Bradford oil would be bought for immediate 
shipment unless it was offered at less than the market price. 
No fixed discount was set. The seller was asked what he would 
take; his offer was, of course, according to his necessities. 
Even then an answer was not always immediately given. The 
seller was told to come back in five or ten days and he would 
be told if his oil would be taken. A feature of the new 
order, particularly galling to the oil men, was the manner in 
which it was enforced. Formerly the buyer and seller had met 
freely in the oil exchanges and their business offices, and 
transactions had been carried on as among equals. Now the 
producers were obliged to form in line before the United 
Pipe Lines' offices and to enter one at a time to consult the 
buyer. A line of a hundred men or more often stood during 
the hours set before the office, waiting their turn to dispose of 
their oil. It should be said in justice to Mr. Bostwick that he 
was not the first buyer to take oil at a discount. The pro- 
ducers themselves frequently offered oil at less than the mar- 
ket price when in need of money, but Mr. Bostwick was the 
first buyer in a situation to force them to make the discount 
regularly. When these orders came, few of the producers had 
sufficient private tankage to take care of any amount of oil. 
Here was the situation then: to keep oil from running on 
the ground the producer must sell it; but if he sold it he must 

[217] 



THE HISTORY OF THE STANDARD OIL COMPANY 
take a price from two to twenty-five cents or more below 
the market. 

The immediate shipment order was not an invention of the 
United Pipe Lines. It had been enforced more than once for 
brief periods by various lines when they found their capacity 
overcrowded by some unexpected situation. In 1872 epizootic 
among the horses so upset things in the Oil Regions that for 
a short time an immediate shipment order was enforced. In 
1874, when the pipe-lines were overtaxed by a great outpour- 
ing of oil in the Lower Field, immediate shipment had been 
attempted, but at that time there were still so many inde- 
pendent pipes struggling for business that the movement met 
no success. Now, however, the United Pipe Lines had things 
its own way. That they were not ready to meet the growing 
Bradford production is plain from a study of the figures. 
There were in the Oil Regions at the close of 1877, according 
to the Oil City Derrick, 4,000,000 barrels of tankage. There 
was on hand at this time 3,127,837 barrels of oil, but the 
empty tankage was in the wrong place. In the Bradford field, 
where the daily production had suddenly increased from 2,000 
barrels in January to 8,451 barrels in December, there was 
only a little over 200,000 barrels of tankage.* In order to take 
care of the oil the pipe-lines began to make nearly all their 
shipments from that field, and oil piled up in the Lower 
Region to the great dissatisfaction of the producers there. 

As soon as the situation of the Bradford field was realised 
both the United Pipes and the producers began a furious cam- 
paign of tank building. By the beginning of April, 1878, the 
tankage there had been increased to 1,152,028 barrels.! Be- 
tween April 1 and November 1 seventy tanks of from 10,000 
to 25,000 barrels capacity were built in McKean County. The 
greater number of these belonged to the producers. According 
to the United Pipe Lines' statement, there was under their con- 

* Oil City Derrick, January 5, 1878. f Derrick Handbook, Vol. II. 

[218] 



THE CRISIS OF 1878 

trol in the entire Oil Regions in October 5,200,000 barrels of 
tankage, two-thirds of which belonged to producers, but was 
held by them under a lease.* But oil poured from the ground 
faster than tanks could be built. In six months — that is, by July, 
1878, — the daily output of Bradford had become over 18,000 
barrels, an increase of 10,000 barrels a day over that of the 
previous December. That it was a most difficult situation for 
everybody is evident. There was but one way to prevent loss — 
shut down the wells and stop the drill; but this the producers 
refused to consider. Of course the price of oil went down 
rapidly, so far did the production exceed consumption. But 
why, cried the producer, when oil is already so low, take 
advantage of our necessity and force us into competition with 
each other; why enforce this immediate shipment? They 
answered their question themselves, and began then to make 
a charge against the Standard, which they continue to make 
to-day; that is, that it habitually meets the extraordinary ex- 
penses to which it is put by depressing the price of crude oil 
— "taking it out of the producer." The Bradford region 
demanded great investments, therefore immediate shipment. 
"The producer pays." The writer has no documentary proof 
that this is Mr. Rockefeller's policy, but there is no question 
that the Oil Region believes it is, and this belief must be taken 
into account if one attempts to explain the long warfare of the 
oil country on him and his company. It is a common enough 
thing to-day, indeed, to hear oil producers in Northwestern 
Pennsylvania remark facetiously when a new endowment to 
Chicago University is reported: "Yes, I contributed so much 
on such a day. Don't you remember how the market slumped 
without a cause? The university needed the money, and so Mr. 
Rockefeller called on us to stand and deliver." 

*The stocks on hand at the end of this month were 4,221,769 barrels. On November 
25, 1878, the Derrick published tables showing 4,576,500 barrels of tankage up and 
building in the Bradford field. Connected with the United Lines were 1,774,500 barrels 
already in use and 1,347,000 building. 

[219] 



THE HISTORY OF THE STANDARD OIL COMPANY 

A few months after "immediate shipment" was begun a new 
cause for dissatisfaction arose. More or less private tankage 
leased to the lines had always been in existence. It enabled 
a producer to carry his oil without paying storage, and, of 
course, it was the business of the company to empty this stor- 
age within a reasonable time after the owner demanded it. 
But in the spring the lines, under the same plea of under 
capacity, refused to carry out this duty to the tank owner; 
that is, they refused to give him his tankage, although he had 
sold his oil. Thus A owns 5,000 barrels of tankage. It is full. 
He sells a portion of it to Mr. Bostwick and asks the United 
Pipe Lines to run the oil accumulated at his wells. But the 
United Pipe Lines refuses on the ground that the line is full. 
The loss to producers incident upon these orders was terrible. 
All over the Bradford field men saw their oil running on the 
ground, though they offered to sell it at ruinous prices, and 
though they might have thousands of barrels of tankage leased 
to the United Lines. Yet they did not riot; conscious that their 
own reckless drilling had brought on the trouble, they cursed 
the Standard, and put down more wells! 

But in the spring of 1878 Mr. Rockefeller and his col- 
leagues instituted a series of manoeuvres which shattered the 
last remnant of confidence the oil men had in the sincerity 
of their claim that they were doing their utmost to relieve the 
distressed Oil Regions, and that their measures were necessary 
to hold the producers in check. The pipe-lines began to refuse 
to load cars for the shippers who supplied the few inde- 
pendent refiners with oil. The experiences of many of these 
independent oil men have been told before the courts. For 
instance, W. H. Nicholson, the representative of Mr. Ohlen, 
of New York, a shipper of petroleum, testified * that in 
May, 1878, he began to have difficulty in getting cars. At 

* Investigation ordered by the secretary of internal affairs of the Commonwealth of 
Pennsylvania, 1878. 

[ 220 ] 



THE CRISIS OF 1878 

Olean, one day, Mr. Ohlen telegraphed to the officials 
of the Erie road to know if he could get 100 cars to run 
East. The reply came back Yes. About noon, Mr. Nicholson 
says, he saw Mr. O'Day, the manager of the United Pipe Lines, 
in which his oil was stored, and told him that he was waiting 
to have his cars loaded. Mr. O'Day at once said he could not 
load the cars. "But I have an order from the Erie officials, giv- 
ing me the cars," Mr. Nicholson objected. "That makes no 
difference, " O'Day replied ; "I cannot load cars except upon an 
order from Pratt." Nor would he do it. The cars were not 
loaded for Mr. Nicholson, although at that time he had ten 
thousand barrels of oil in the United Pipe Lines, and an 
order for 100 cars from the officials of the Erie road in his 
hand. 

B. B. Campbell, at that time president of the Producers' 
Union, gave his experience at this time in the suit of the 
Commonwealth against the Pennsylvania Railroad: 

"I never heard of a scarcity of cars until the early part of June, 1878; I came to 
Parker about five o'clock in the evening, and found the citizens in a state of terrible 
excitement; the Pipe-Lines would not run oil unless it was sold; the only shippers we 
had in Parker of any amount, viz., the agents of the Standard Oil Company, would 
not buy oil, stating that they could not get cars; hundreds of wells were stopped to 
their great injury; thousands more, whose owners were afraid to stop them for fear 

I of damage by salt-water, were pumping the oil on the ground. I used all the influence 
I had to prevent an outbreak and destruction of railroad and pipe-lines; I at once 
went over to the Allegheny Valley Railroad office and telegraphed to John Scott, 
president of the Allegheny Valley Railroad Company: 

'"The refusal of the United to run oil unless sold upon immediate shipment, and 
of the railroad to furnish cars, has created such a degree of excitement here that the 
more conservative part of the citizens will not be able to control the peace, and I fear 
that the scenes of last July will be repeated on an aggravated scale/ That message I 
left in the office about seven o'clock in the evening. I got up the next morning before 

Iven and received an answer: 
'"What do you advise should be done? John Scott.' I answered: 'Will meet you 
-morrow morning,' which would be Saturday. 
"On Saturday morning I came in on an early train and met at the depot Mr. Shinn, 
[221] 



THE HISTORY OF THE STANDARD OIL COMPANY 

then, I believe, vice-president of the Allegheny Valley Railroad Company, David A. 
Stewart, one of the directors of the road, and Thomas M. King, assistant superin- 
tendent. I spoke very plainly to Mr. Shinn, telling him that the idea of a scarcity 
of cars on daily shipments of less than 30,000 barrels a day was such an 
absurd, barefaced pretence that he could not expect men of ordinary intelligence to 
accept it, as the preceding fall, when business required, the railroads could carry 
day after day from 50,000 to 60,000 barrels of oil. Mr. Shinn stated clearly that 
I knew that the Allegheny Valley Railroad Company did not control the oil business 
over its line, but was governed entirely and exclusively by orders received from the 
Pennsylvania Railroad Company. I then requested him to be the vehicle of com- 
municating to the Pennsylvania Railroad officials my views on the subject, telling 
him that I was convinced that unless immediate relief was furnished and cars afforded 
there would be an outbreak in the Oil Regions. After further conversation we parted. 
My interview with them was not as officials of the Allegheny Valley Railroad Company, 
but as representatives of the oil traffic carried and controlled by the Pennsylvania 
road. On the next Monday I returned to Parker. After passing Redbank, where the 
low grade road, the connecting link between the Valley Road and the Philadelphia 
and Erie Road, meets the Valley Road — between that point and Parker — the express 
train was delayed for over half an hour in passing through hundreds of empty oil cars."* 

In June another exasperating episode occurred, growing 
out of the attempts of the oil men to secure independent routes 
to the seaboard. As we have seen, two enterprises had been 
launched late in 1877 under the patronage of the Petroleum 
Producers' Union. As soon as the Equitable had acquired its 
right of way to Buffalo, Mr. Emery, the head of the com- 
pany, his papers in hand, sought an interview with representa- 
tives of the Buffalo and McKean road, and told them if 
they did not consent that the Equitable lay a pipe-line to their 
road, and did not contract to carry the oil from that connec- 
tion to Buffalo, the pipe-line to Buffalo would be laid. After 
considerable negotiation a contract was made with the rail- 
road, and by June the new company was ready with pipe- 
line, cars and barges to carry oil to New York. But no sooner 
did they attempt to begin operations than the railroad, under 
pressure from the Pennsylvania Railroad it was claimed, re- 

* Abridged from Mr. Campbell's testimony. 
[ 222 ] 



THE CRISIS OF 1878 

fused to carry out its contracts. The cars the Equitable ordered 
sent to the loading track were refused, a side track it had 
laid was torn up, the frog torn out; everything, indeed, was 
done to prevent the Equitable doing business, though finally 
a vigorous appeal to the law brought the road to terms, and 
in July oil began to flow Eastward by this indirect route. No 
sooner did the Standard find that the Equitable people were 
really doing business than they appealed to the railroads. A 
meeting of the representatives of the trunk lines was held at 
Saratoga in July, and the rates on crude Eastward were 
dropped to eighty cents to meet the new competition. 

While this fight was going on against the Equitable all 
sorts of interference were being put in the way of the seaboard 
line between Brady's Bend and Baltimore. It was ridiculed 
as chimerical to attempt to pump oil over the mountains, and 
General Haupt was declared to be a visionary engineer with 
a record of failures. All the old stories retailed in 1876 were 
dragged out again. The farmers were told that the leakage 
from the pipe-line would ruin their fields and endanger their 
buildings, and an active campaign to excite prejudice was car- 
ried on again in the farmers' papers. Philadelphia and Pitts- 
burg both fought the plan, the press and chambers of com- 
merce opposing the free pipe bill at that time before the Legis- 
lature, and the project generally. In Pittsburg the opposition 
created almost a riot, for the oil producers of the Lower Field, 
who had long bought their supplies there, now threatened to 
boycott the city if the pipe-line was fought. So strong was the 
opposition that capital took fright and the company found 
it most difficult to secure funds. This opposition to the pipe- 
line was, of course, charged against the Standard and the 
Pennsylvania Railroad. 

Now, while the railroads were refusing cars to independent 
shippers, — or if they gave an order for them, the United Pipe 
Lines were refusing to load them, — while the Standard and the 

[ 223 ]f 



THE HISTORY OF THE STANDARD OIL COMPANY 

railroads were doing their utmost to prevent the Equitable 
Line doing business, and were discouraging in every way the 
seaboard pipe-line — new routes which would take care of a 
proportion, at least, of the oil which they claimed they could 
not handle — thousands of barrels of oil were running on the 
ground in Bradford, and two of the independent refineries of 
New York shut down entirely in order that a third of their 
number might get oil enough to fill an order. 

This interference with the outside interests, thus preventing 
the small degree of relief which they would have afforded, and 
a growing conviction that the Standard meant to keep up the 
"immediate shipment" order, at least until it had built the 
pipes and tanks needed in the Bradford field, finally aroused 
the region to a point where riot was imminent. The long line 
of producers who filed into the United Pipe Lines' office day 
after day to sell their oil at whatever prices they could get 
for it, and who, having put in an offer which varied accord- 
ing to their necessities, were usually told to come back in ten 
days, and the buyer would see whether he wanted it or not — 
this long line of men began to talk of revolution. Crowds gath- 
ered about the offices of the Standard threatening and jeering. 
Mysterious things, cross-bones and death-heads, were found 
plentifully sprinkled on the buildings owned by the Standard 
interests. More than once the slumber of the oil towns was 
disturbed by marching bodies of men. It was certain that a 
species of Kuklux had hold of the Bradford region, and that 
a very little spark was needed to touch off the United Pipe 
Lines. In the meantime things were scarcely less exciting in 
the Lower Fields. The "immediate shipment" order was 
looked upon there as particularly outrageous, because there 
was no lack of lines or tanks in that field, and when, in the 
summer of 1878, there was added to this cause an unjustifiable 
scarcity of cars, excitement rose to fever heat. 

The only thing which prevented a riot at this time and 

[224] 



THE CRISIS OF 1878 

great destruction of property, if not of life, was the strong 
hand the Petroleum Producers' Union had on the country. 
Fearing that if violence did occur the different movements 
they had under way would be prejudiced, they sent a committee 
of twenty-five men to Harrisburg to see Governor Hartranft. 
They laid before him and the attorney-general of the state 
the grievance of the oil producers in an "appeal" reviewing 
the history of the industry.* They demanded that the United 
Pipe Lines be made to perform its duty as a public carrier, 
and the railroads be made to cease their discrimination against 
shippers both in the matter of rebates and in furnishing cars. 
They called the Governor's attention to the fact that there 
were already existing laws touching these matters which, in 
their judgment, met the case, and if the existing laws did not 
give them relief, that it was the plain duty of the executive 
to call a meeting of the Legislature and pass such acts as 
would do so. Governor Hartranft was much stirred by the 
story of the producers. He went himself to the Oil Regions to 
see the situation, and in August directed the producers to put 
their demands into the form of an appeal. This was done, and 
it was decided to bring proceedings by writ of quo warranto 
against the United Pipe Lines, and by separate bills in equity 
against the Pennsylvania Railroad and the other lines doing 
business in the state. It was September before the state author- 
ities began their investigation of the United Pipe Lines, the 
hearings being held in Titusville. Many witnesses summoned 
failed to appear, but enough testimony was brought out in 
this investigation to show that the railroads had refused to 
furnish cars for independents when they had them empty, and 
that the United Pipe Lines had clearly violated its duty as 
a common carrier. In his report on this investigation the 
secretary of internal affairs, William McCandless, rendered 

* See Appendix, Number 32. Producers' Appeal of 1878 to Governor John F. 
Hartranft of Pennsylvania. 

[225] 



THE HISTORY OF THE STANDARD OIL COMPANY 

a verdict that the charges of the oil producers had not been 
substantiated in any way that demanded action. 

The indignation which followed this report was intense. 
It found a vent in the hanging in effigy of McCandless, who 
was universally known in the state as "Buck." In the oil 
exchange at Parker, on the morning of October 19, the figure 
of a man was found hanged by the neck to a gallows, and the 
producers left it hanging there all day, so that they might 
jeer and curse it. Across the forehead of the effigy in large 
blood-red letters were the words : 



PENNSYLVANIA RAILROAD 



Pinned to the gallows there was a card bearing a quotation 
from Secretary McCandless's report: 



The charges of the oil producers have not been 
substantiated in any way that demands action. 



In Bradford a huge effigy hung in the streets all day, and 
in the village of Tarport, near by, another swayed on the gal- 
lows. They pulled down the effigy at Bradford, and drew 
from a pocket what purported to be a check signed by 
John D. Rockefeller, president of the Standard Oil Com- 
pany, in favour of "Buck" McCandless, for $20,000, and 
endorsed by the Pennsylvania Railroad Company. That repre- 
sented the price, they said, that McCandless got for signing 
the report. Throughout the oil country there was hardly an 
oil producer to be found not associated with the Standard Oil 
Company who did not believe that McCandless had sold him- 
self and his office to the Standard Oil Combination for $20,- 
000, and used the money to help in his Congressional canvass. 

The excitement in the Oil Regions spread all over the 

[226] 



THE CRISIS OF 1878 

country. Something of the importance the press attached 
to it may be judged from the way the New York Sun 
handled the question. For six weeks it kept one of the ablest 
members of its staff in the Oil Regions. Six columns of the 
first page of the issue for November 13 was taken up with the 
story of the excitement, coupled with the full account of the 
South Improvement Company, and the development of the 
Standard Oil Company out of that concern. On November 
23 the first page contained four columns more under blazing 
headings. 

Early in 1879 the hearing in the suits in equity brought 
by the commonwealth against the various transportation 
companies of which the producers had been complaining were 
begun. The witnesses subpoenaed failed at first to appear, and 
when on the stand they frequently refused to reply; but it 
soon became apparent to them that the state authorities were 
in earnest, and that they must "answer or go to Europe." By 
March, 1879, an important array of testimony had been 
brought out. Among the Standard men who had appeared 
had been John D. Archbold, William Frew, Charles Lock- 
hart and J. J. Vandergrift. A score or more of producers also 
appeared. The most important witness from the railroad cir- 
cles, and, indeed, the most important witness who appeared, 
was A. J. Cassatt. Mr. Cassatt's testimony! was startling in 
its candour and its completeness, and substantiated in every 
particular what the oil men had been claiming: that the 
Pennsylvania Railroad had become the creature of the Stand- 
ard Oil Company; that it was not only giving that company 
rates much lower than to any other organisation, but that it 
was using its facilities with a direct view of preventing any 
outside refiner or dealer in oil from carrying on an inde- 
pendent business.* 

*The story of the Empire Transportation Company, told in the last chapter, was 
brought out in this testimony of Mr. Cassatt's. 

[227] 



THE HISTORY OF THE STANDARD OIL COMPANY 

The same or similar conditions, not only in oil, but in other 
products, which led to these suits, led to investigations in other j 
states. Toward the end of 1878 the Chamber of Commerce 
of New York City demanded from the Legislature of the 
state an investigation of the New York railroads. This inves- 
tigation was carried on from the beginning of 1879. The reve- 
lations were amazing. Before the Hepburn Commission, as 
it was called from the name of the chairman, was through 
with its work there had appeared before it to give testimony 
in regard to the conduct of the Standard Oil Company and of 
the relation of the Erie and the Central roads to it, H. H. 
Rogers, J. D. Archbold, Jabez A. Bostwick and W. T. 
Sheide. A large number of independent oil men had also 
appeared. William H. Vanderbilt had been examined, and 
G. H. Blanchard, the freight agent of the Erie road, had ; 
given a full account of the relation of the Erie to the Stand- 
ard, perhaps the most useful piece of testimony, after that of 
Mr. Cassatt, belonging to this period of the Standard's his- 
tory.* 

At the same time that the Pennsylvania suits were going 
on, and the Hepburn Commission was doing its work, the 
Legislature of Ohio instituted an investigation. It was com- 
monly charged that this investigation was smothered, but it 
was not smothered until H. M. Flagler had appeared before 
it and given some most interesting facts concerning rebates. A 
number of gentlemen who were rinding it hard to do oil busi- 
ness also appeared before the Ohio committee and told their 
stories.f By April, 1879, there had been brought out in these 

* The testimony taken before the Hepburn Committee has never been printed in 
the series of Assembly documents. An edition of ioo copies was printed during 
the session for the use of the committee. It is usually bound in five volumes, and is, 
of course, very rare. 

t300 copies of the report of the testimony taken were printed. No copy is to be 
found in any library of the state of Ohio. The writer has never seen but one copy of 
this report. 

[228 ] 



THE CRISIS OF 1878 

various investigations a mass of testimony sufficient in the 
judgment of certain of the producers to establish the truth of 
a charge which they had long been making, and that was that 
the Standard was simply a revival of the South Improvement 
Company. Now the verdict of the Congressional Committee 
had been that the South Improvement Company was a con- 
spiracy. Therefore, said the producers, the Standard Oil Com- 
pany is a conspiracy. Their hope had been, from the first, to 
obtain proof to establish this charge. Having this they be- 
lieved they could obtain judgment from the courts against 
the officials of the company, and either break it up or put 
its members in the penitentiary. The more hotheaded of the 
producers believed that they now had this evidence. 

If one will examine the testimony which had been given 
thus far in the course of the various examinations one will 
see that there was reason for their belief. In the first place, 
it had been established that all the stockholders of the South 
Improvement Company, excepting four, were now members 
of the Standard Oil Combination. Indeed, the only persons 
holding high positions in the new combination at this date 
who were not South Improvement Company men were, 
Charles Pratt, J. J. Vandergrift, H. H. Rogers and John D. 
Archbold. 

The South Improvement Company had been a secret 
organisation. So was the new Standard alliance; that is, the 
most strenuous efforts had been made to keep it secret; for 
instance, the sale of the works of Lockhart, Warden and Pratt 
to the Standard was kept from the public. Indeed, it was a 
year after these sales before even the Erie Railroad knew that 
Mr. Rockefeller had any affiliations besides those with Pratt 
and Company, and it made its contracts with him on this as- 
sumption. When purchases of refineries were made it was the 
custom to continue the business under the name of the original 
concern; thus, when Mrs. B., of Cleveland, sold in 1878, as 

[229] 



THE HISTORY OF THE STANDARD OIL COMPANY 

recounted in the last chapter, the persons selling were obliged 
to keep the sale secret even from the employees of the con- 
cern. "The understanding was with regard to the sale of the 
property to the Standard Oil Company," said the shipping 
clerk in his affidavit, "that it should not be known outside of 
their own parties, that it was to be kept a profound secret, 

and that the business was to be carried on as if the B 

Oil Company was still a competitor." The secret rites with 
which the contract was made in 1876 between Mr. Rocke- 
feller and Scofield, Shurmer and Teagle have already been 
described. 

To keep the relations of the various Standard concerns se- 
cret Mr. Rockefeller went so far, in 1880, as to make an affi- 
davit like the following: "It is not true, as stated by Mr. 
Teagle in his affidavit, that the Standard Oil Company, 
directly or indirectly through its officers or agents, owns or 
controls the works of Warden, Frew and Company, Lockhart, 
Frew and Company, J. A. Bostwick and Company, C. Pratt 
and Company, Acme Refining Company, Imperial Refining 
Company, Camden Consolidated Company, and the Devoe 
Manufacturing Company; nor is it true that the Standard Oil 
Company, directly or indirectly through its officers or agents, 
owns or controls the refinery at Hunter's Point, New York. 
It is not true that the Standard Oil Company, directly or indi- 
rectly through its officers or agents, purchased or acquired the 
Empire Transportation Company, or furnished the money 
therefor; nor is it true that the Standard Oil Company inaugu- 
rated or began or induced any other person or corporation 
to inaugurate or begin a war upon the Pennsylvania Railroad 
Company or the Empire Transportation Company, as stated 
in the affidavit of Mr. Teagle." * 

There may be a technical explanation of this affidavit, 

* In the case of the Standard Oil Company vs. William C. Scofield et al. y in the 
Court of Common Pleas, Cuyahoga County, Ohio, 1880. 

[230] 



THE CRISIS OF 1878 

although the writer knows of none. There is certainly abun- 
dant testimony in existence that the works of Messrs. Pratt, 
Lockhart and Warden, at least, had been bought long before 
this affidavit was made, and paid for in Standard Oil Com- 
pany stock, and that they were working in alliance with that 
company. It was shown in the last chapter that on October 
l 7> l %77, tne Standard Oil Company paid $2,500,000 in certi- 
fied checks on the purchasing price of the plant of the Empire 
Transportation Company. 

While none of the other members of the Standard Oil 
Company examined in 1879 was quite so sweeping in his 
denials, all of them evaded direct answers. The reason they 
gave for this evasion was that the investigations were an inter- 
ference with their rights as private citizens, and that the 
government had no business to inquire into their methods. 
Consequently when asked questions they refused to answer 
"by advice of counsel." Ultimately the gentlemen did answer 
a great many questions. But taking the testimony all in all 
through these years it certainly is a mild characterisation to 
say that it totally lacks in frankness. The testimony of the 
Standard officials before the Hepburn Commission was so 
evasive that the committee in making its report spoke bitterly 
of the company as "a mysterious organisation whose business 
and transactions are of such a character that its members 
decline giving a history or description of it lest this testimony 
be used to convict them of a crime." The producers cer- 
tainly were right in claiming that secrecy was a characteristic 
of the Standard as it had been of the South Improvement 
Company. 

The new Standard Combination^ like the South Improve- 
ment Company, aimed at controlling the entire refining inter- 
est. "The coal oil business belongs to us," Mr. Rockefeller 
once told a recalcitrant refiner. His associates were saying the 

Iame on all sides; "the object of the Standard Oil Company 
[231] 



THE HISTORY OF THE STANDARD OIL COMPANY 

is to secure the entire refining business of the world," a mem- 
ber of the concern told B. F. Nye, an Ohio producer.* 

The method the Standard depended upon to secure this 
control was the same as the method of the South Improve- 
ment Company — special privileges in transportation. We 
have seen how intelligently and persistently Mr. Rockefeller 
worked to secure these special privileges until, in 1877, he 
had made with all the trunk lines contracts which in every 
particular paralleled the contracts which in January, 1872, 
Messrs. Scott, Gould, Vanderbilt and McClellan made with 
the South Improvement Company. He now had a rebate on 
every barrel of oil he shipped, and this was given with the 
understanding that the railroad should allow no rebate to 
any other shipper unless that shipper could guarantee and 
furnish a quantity of oil for shipment which would, after 
deduction of his commission, realise to the road the same 
amount of profit realised from the Standard trade. He also 
had a drawback on every barrel his rivals shipped. No clause 
in the South Improvement Company's contract with railroads 
had given more offence to the oil world than that which called 
for a drawback to the company on the oil shipped by outsiders. 
It will be remembered that the beneficiaries of this contract 
were to receive drawbacks of $1.06 a barrel on all crude oil 
that outside parties shipped from the Oil Regions to New 
York, and a proportionate drawback on that shipped from 
other points. The rebate system was considered illegal and 
unjust, but men were more or less accustomed to it. The draw- 
back on other people's shipment was a new device, and it 
threw the Oil Region into a frenzy of rage. It did not seem 
possible that the Standard would attempt to revive this prac- 
tice again, and yet when it had got its hand strongly on the 
four trunk lines it made a demand for the drawback. It has 
already been recounted how, on February 15, 1878, four 

* Ohio State Investigation of freight discrimination, 1879. 
[232] 



THE CRISIS OF 1878 

months after the Pennsylvania succumbed to the Standard's 
demand, Mr. O'Day wrote to Mr. Cassatt: "I here repeat 
what I once stated to you, and which I wish you to receive 
and treat as strictly confidential, that we have been for many 
months receiving from the New York Central and Erie Rail- 
roads certain sums of money, in no instance less than twenty 
cents per barrel on every barrel of crude oil carried by each 
of these roads. . . . Co-operating as we are doing with 
the Standard Oil Company and the trunk lines in every effort 
to secure for the railroads paying rates of freight on the oil 
they carry, I am constrained to say to you that in justice to 
the interests I represent we should receive from your com- 
pany at least twenty cents on each barrel of crude oil you 
transport." And Mr. Cassatt after seeing the freight bills 
showing that both the Central and Erie allowed a drawback 
gave orders that the Pennsylvania pay one of 22% cents. When 
Mr. Cassatt was under examination in 1874 the examiner 
remarked : 

"I understand, Mr. Cassatt, that this 22}4 cents paid to the 
American Transfer Company is not restricted to all oil that 
passed through their lines." 

"No, sir; it is paid on all oil received and transferred 
by us." 

Among the interesting documents presented at this inquiry 
was a statement of the crude oil shipments over the Pennsyl- 
vania road for February and March, 1878.* They footed up 
to a total of 343,767^ barrels. On this amount a discount of 
twenty cents a barrel was allowed to the Standard Oil Com- 
pany through its agent, the American Transfer Company. 
Among other independents who shipped this oil was H. C. 
Ohlen. In all, Mr. Ohlen shipped 29,876 barrels, and on this 

* See Appendix, Number 33. Statement of crude oil shipments by Green Line 
during the months of February and March, 1878, to New York, Philadelphia and 
Baltimore: showing drawbacks allowed to American Transfer Company. 

[233] 



THE HISTORY OF THE STANDARD OIL COMPANY 

the Standard Oil Company received twenty cents a barrel! 
That is, after Mr. Ohlen had paid for his oil, paid for having 
it carried by the pipe-line to the railroad, and paid the rail- ! 
road the full rate of freight without the commission the Stand- 
ard received, the Pennsylvania was obliged to turn over to 
the Standard Oil Company twenty cents of the amount he had | 
paid on each barrel! 

The examiner tried very hard to find out if there was a 
legitimate reason why such an allowance should have been 
made to the American Transfer Company on oil it did not 
handle. "We pay that," Mr. Cassatt said, "as a commission to 
them to aid in securing us our share of trade." "We pay it," 
said the comptroller, "for procuring oil to go over the lines 
in which the Pennsylvania Railroad Company is inter- 
ested as against the New York lines and the New York 
Central." 

"Do you understand," the examiner questioned of one of 
the auditors, "that the American Transfer Company secured 
to the Pennsylvania road the traffic of the outside refiners of 
New York (mentioned in the statement quoted above) ?" "I 
never raised a question of that kind in my mind," answered 
the adroit auditor. 

But the answer was evident. The American Transfer Com- 
pany had nothing whatever to do with the oil shipped by Mr. 
Ohlen or Ayres, Lombard and Company or J. Rousseaux or 
any one of the other independents mentioned in the statement, 
unless perchance that oil had come originally from the lines of 
the American Transfer Company. In that case the shipper 
had paid the line for the service rendered, at the time he 
bought the oil — the custom then and now. The tax was paid 
by the Pennsylvania solely because the Standard Oil Com- 
pany had the power to demand it. The demand was made in 
the name of the American Transfer Company as a blind. 
Naturally the proof that the Standard had revived the most 

[234] 



THE CRISIS OF 1878 

obnoxious feature of the South Improvement Company 
aroused intense bitterness and disgust among the oil men. 

Another offensive clause of the 1872 contracts was that 
pledging the railroads to lower or raise the gross rates of 
transportation for such times and to such extent as might be 
necessary to overcome competition. Now, the new contracts of 
the Standard provided the same arrangement; that is, they 
stipulated that the rates were to be lowered if necessary so as 
to place the Standard on a parity with shippers by competing 
lines. The workings of the clause were illustrated when the 
producers got the Equitable Line through in 1878, the rail- 
roads dropping their charge to eighty cents a barrel, and in 
some cases even less. The producers certainly had evidence 
enough for their claim that the contracts of the South Im- 
provement Company and the Standard Oil Company with 
the railroads were similar in every particular as far as princi- 
ples were concerned — that they differed alone in the amounts 
of the rebates and drawbacks. 

There was plenty of evidence brought out, also, to show 
that the object of the Standard operations was like that of 
the South Improvement Company — keeping up the price of 
refined oil. Both combinations were formed to keep the refined 
article scarce on the market by controlling all the refineries 
and by refusing to sell under competition. The officials of the 
South Improvement Company stated under oath that they 
hoped to raise the price fifty per cent. The Central Organisa- 
tion hoped to put up the price of refined from fifteen to 
twenty-five cents. As a matter of fact that organisation when 
it finally got control of the market put up the price consider- 
ably more. The spectacular demonstration in the winter of 
1876 and 1877 of what could be done in keeping up the price 

If refined was still rankling in the minds of the oil men. They 
aw that it was by that coup that the Standard had gotten 
he ready money to pay for the plant of the Empire Trans- 
[235] 



THE HISTORY OF THE STANDARD OIL COMPANY 

portation Company — the money to buy in whatever it wanted 
— the money to pay the fifty per cent, dividend to which one 
of its members testified in the Ohio Investigation. They 
remembered that while the refiners had been selling refined 
around thirty cents a gallon they had sold crude at less than 
four dollars a barrel. Little wonder then that they felt they 
had evidence that the Standard had actually done what they 
had always claimed it would do if it got hold of the refining 
interests as it planned. Even in the case where certain large 
producers had entered into a partnership with the Standard 
on condition that they pay them prices for crude commen- 
surate with the price of refined, these producers claimed the 
agreement had not been kept. One of these cases came to light 
in a suit instituted in 1878. It seems that some time in Decem- 
ber, 1874, me l ar g e oil company of H. L. Taylor and Company 
sold one-half interest in its property to the Standard Oil Com- 
pany. The reason for the sale the plaintiffs stated in their 
complaint to be as follows: 

The extent of their (the Standard's) business and control over pipe-lines and refineries 
had enabled them to procure, and they had procured from the railways, more favour- 
able terms for transportation than others could obtain. These advantages and facilities 
placed it within their power to obtain, and they did obtain, far better and more uniform 
prices for petroleum than could be obtained by the plaintiffs. The said organisation 
and firms, by virtue of their monopoly of the business of refining and transportation 
of oil, had been at times almost the only buyers in the market, and at such times had 
been enabled to dictate and establish a price for crude oil far below its actual value, 
as determined by prices of refined oil at same dates, and they thus obtained a large 
share of the profits which should have fallen to the plaintiff's and other purchasers. 
The sale was made, and in consideration of the foregoing premises, and upon the 
promise and agreement on the part of the defendants that the partnership thus formed 
should have the benefit of the advantage and facilities of the said defendants, and the 
organisations and firms managed and controlled by defendants, in marketing its oil; 
that the firm should have to the extent of its production the advantage of the sales 
of refined by the defendants or said Standard Oil Company, either for present or future 
delivery, so that there should be at no time any margin or difference between the 
ruling price of refined oil, and the price which defendants would pay the partnership 

[236] 






THE CRISIS OF 1878 

for the crude by it produced, beyond the necessary cost of refining. This thing formed 
the inducement and the larger part of the consideration for the sale of said property 
to defendants. The amount actually received for said interest was far beneath its 
actual value, and without the agreement on the part of the defendants to pay to the 
partnership for its product prices at all times commensurate with the prices of refined 
oil, they would not have sold the said interest nor entered into said partnership. 

The defendants, although requested to do so, have not only failed, neglected, and 
refused to comply with this agreement, but have, by false and erroneous statements, 
misled the plaintiffs, and induced them to consent to the sale to them and to the 
Standard Oil Company of large quantities of crude petroleum, produced by the partner- 
ship at prices far below its actual value, to the great loss and damage of the orators. 
That on or about December 16, 1876, refined was selling at a price equivalent to 
seven dollars for crude oil, at which time plaintiffs called upon defendants for a com- 
pliance with their agreement, and asked that they take or purchase 210,000 barrels 
of the production of the partnership at a price commensurate with the price of refined 
at the time. This, defendants neglected and refused to do, and the partnership was 
forced to sell the same at prices varying from three to four dollars, making a loss to the 
partnership upon this one transaction of from #600,000 to #1,000,000, for which said 
defendants neglect and refuse to account. 

That the said defendants for themselves, and for the said Standard Oil Company, 
and other organisations and firms aforesaid, have since the formation of the partnership 
received from the railways a rebate or drawback in the shape of wheelage, or otherwise* 
at times as high as one dollar per barrel upon all oil shipped by them to the seaboard. 
That instead of using these advantages which they possess for the benefit and profit of 
the partnership, as they covenanted to do, they have used them against its interest by 
restraining trade, preventing competition, and forcing plaintiffs to accept any price 
which defendants, the said Standard Oil Company, or the other organisations afore- 
said, might offer for their production. That the amount of oil produced and sold by 
the partnership for the three years beginning with the date of its formation, and ending 
December 1, 1877, was 2,657,830 barrels. That the profits of defendants upon oil 
refined by them during said period, taking into consideration the rebates and draw- 
backs received from the railways, have averaged at least one dollar per barrel over and 
Ibove the cost of refining, and at times as high as four and five dollars. That these 
rofits, under the partnership agreement that no margin should exist between crude 
nd refined prices, should to the extent of the production of the partnership have been 
aid by defendants to the partnership. That the amount lost by the partnership and 
ealised by the defendants, by reason of the failure and refusal of said defendants to 
[237] 



THE HISTORY OF THE STANDARD OIL COMPANY 

comply with their agreement, is not less than $2,500,000, for one-half of which de- 
fendants should account to your orators, but which they neglect and refuse to do. 

Naturally enough the producers now pointed out that the 
case of the H. L. Taylor Company was a demonstration of 
what they had claimed in 1872, when the South Improvement 
Company, alarmed at the uprising, offered them a contract, 
and what they had always claimed since when the Standard 
offered contracts for oil on a sliding scale, viz., that such 
contracts were never meant to be kept; that they were a blind 
to enable the Standard to make scoops such as they had made 
in the winter of 1876 and 1877. 

Taking all these points into consideration — 

First — That the Standard Oil Company, like the South 
Improvement Company, was a secret organisation; 

Second — That both companies were composed in the main 
of the same parties ; 

Third — That it aimed, like its predecessors, at getting entire 
control of the refining interest; 

Fourth — That it used the power the combination gave it to 
get rebates on its own oil shipments and drawbacks on the 
shipments of other people; 

Fifth — That it arranged contracts which compelled the 
railroads to run out all competition by lowering their 
rates. 

Sixth — That it aimed to put up the price of refined with- 
out allowing the producer a share of the profits — 

Taking all these points into consideration, many of the pro- 
ducers, including the president of the Petroleum Producers' 
Union, B. B. Campbell, and certain members of his Coun- 
cil, came to the conclusion that as they had sufficient evi- 
dence against the members of the Standard Combination 
to insure conviction for criminal conspiracy, they should pro- 
ceed against them. Strenuous opposition to the proceedings, as 
hasty and ill-advised, developed in the Council and the Legal 

[238] 



THE CRISIS OF 1878 

Committee, but the majority decided that the prosecution 
should be instituted. Mr. Scott and Mr. Cassatt were omitted 
from the proposed indictment on the ground that they were 
already weary of the Standard, and would cease their illegal 
practices gladly if they could. 

On the 29th day of April, 1879, the Grand Jury of the 
County of Clarion found an indictment against John D. 
Rockefeller, William Rockefeller, Jabez A. Bostwick, Daniel 
O'Day, William G. Warden, Charles Lockhart, Henry M. 
Flagler, Jacob J. Vandergrift and George W. Girty. (Girty 
was the cashier of the Standard Oil Company.) There were 
eight counts in the indictment, and charged, in brief, a conspir- 
acy for the purpose of securing a monopoly of the business of 
buying and selling crude petroleum, and to prevent others than 
themselves from buying and selling and making a legitimate 
profit thereby; a combination to oppress and injure those en- 
gaged in producing petroleum; a conspiracy to prevent others 
than themselves from engaging in the business of refining 
petroleum, and to secure a monopoly of that business for them- 
selves; a combination to injure the carrying trade of the 
Allegheny Valley and Pennsylvania Railroad Companies by 
perventing them from receiving the natural petroleum traffic; 
to divert the traffic naturally belonging to the Pennsylvania 
carriers to those of other states by unlawful means; and to 
extort from railroad companies unreasonable rebates and com- 
missions, and by fraudulent means and devices to control the 
market prices of crude and refined petroleum and acquire 
unlawful gains thereby.* 

Four of the persons mentioned in the indictment — Messrs. 
O'Day, Warden, Lockhart and Vandergrift — all citizens of 
Pennsylvania, gave bail, and early in June application was 
made to Governor Hoyt of Pennsylvania to issue a requisition 

I* See Appendix, Number 34. Bill of particulars of evidence to be offered by the 
mmonwealth. 
[239] 



THE HISTORY OF THE STANDARD OIL COMPANY 

before the Governor of New York for the extradition of the 
other five gentlemen. 

With damaging testimony piling up day by day in three 
states, and with an indictment for conspiracy hanging over 
the heads of himself and eight of his associates, matters looked 
gloomy for John D. Rockefeller in the spring of 1879. "The 
good of the oil business" certainly seemed in danger. 



[240] 



CHAPTER EIGHT 
THE COMPROMISE OF 1880 

THE PRODUCERS' SUIT AGAINST ROCKEFELLER AND HIS ASSOCIATES USED 
BY THE STANDARD TO PROTECT ITSELF— SUITS AGAINST THE TRANSPOR- 
TATION COMPANIES ARE DELAYED— TRIAL OF ROCKEFELLER AND HIS 
ASSOCIATES FOR CONSPIRACY POSTPONED — ALL OF THE SUITS WITH- 
DRAWN IN RETURN FOR AGREEMENTS OF THE STANDARD AND THE 
PENNSYLVANIA TO CEASE THEIR PRACTICES AGAINST THE PRODUCERS— 
WITH THIS COMPROMISE THE SECOND PETROLEUM PRODUCERS' UNION 
COMES TO AN END— PRODUCERS THEMSELVES TO BLAME FOR NOT STAND- 
ING BEHIND THEIR LEADERS— STANDARD AGAIN ENFORCES ORDERS OBJEC- 
TIONABLE TO PRODUCERS— MORE OUTBREAKS IN THE OIL REGIONS- 
ROCKEFELLER HAVING SILENCED ORGANISED OPPOSITION PROCEEDS TO 
SILENCE INDIVIDUAL COMPLAINT. 

NO doubt the indictment of Mr. Rockefeller in 
the spring of 1879 seemed to him the work of 
malice and spite. By seven years of persistent effort 
he had worked out a well-conceived plan for con- 
trolling the oil business of the United States. Another year 
and he had reason to believe that the remnant of refiners 
who still rebelled against his intentions would either be con- 
vinced or dead and he could rule unimpeded. But here at the 
very threshold of empire a certain group of people — "people 
with a private grievance," "mossbacks naturally left in the 
lurch by the progress of this rapidly developing trade," his col- 
leagues described them to the Hepburn Commission — stood 
in his way. "You have taken deliberate advantage of the 
iniquitous practices of the railroads to build up a monopoly," 
they told him. "We combined to overthrow those practices so 

[241] 



THE HISTORY OF THE STANDARD OIL COMPANY 

far as the oil business was concerned. You not only refused 
to support us in this contention, you persuaded or forced 
the railroads to make you the only recipient of their illegal 
favours; more than that, you developed the unjust practices, 
forcing them into forms unheard of before. Not only have 
you secured rebates of extraordinary value on all your own 
shipments, you have persuaded the railroads to give you 
a commission on the oil that other people ship. You are 
guilty of plotting against the prosperity of an industry." 
And they indicted him with eight of his colleagues for con- 
spiracy. 

The evidence on which the oil men based this serious 
charge has already been analysed. At the moment they brought 
their suit for conspiracy what was their situation? They had 
several months before driven the commonwealth of Penn- 
sylvania to bring suits against four railroads operating within 
its borders and against the Standard pipe-lines for infringing 
their duties as common carriers. Partial testimony had been 
taken in the case against the Pennsylvania road and in that 
against the United Pipe Lines. These suits, though far from 
finished, had given the Producers' Union the bulk of the 
proof on which they had secured the indictment of the Stand- 
ard officials for conspiracy. Now, since the railroads and 
the pipe-lines were the guilty ones — that is, as it was they 
who had granted the illegal favours, and as they were the 
only ones that could surely be convicted, it seems clear that 
the only wise course for the producers would have been to 
prosecute energetically and exclusively these first suits. But 
evident as the necessity for such persistency was, and just after 
Mr. Cassatt had startled the public and given the Union 
material with which it certainly in time could have compelled 
the commonwealth to a complete investigation, the producers 
interrupted their work by bringing their spectacular suit for 
conspiracy — a suit which perhaps might have been properly 

[242] 



THE COMPROMISE OF 1880 

instituted after the others had been completed, but which, 
introduced now, completely changed the situation, for it gave 
the witnesses from whom they were most anxious to hear a 
loophole for escape. 

For instance, the officials of the Standard pipe-lines had 
been instructed to appear on the 14th of May, 1879, to 
answer questions which earlier in the trial they had refused 
to answer "on advice of counsel." Now the president of the 
United Pipe Lines, J. J. Vandergrift, and the general man- 
ager, Daniel O'Day, were both included in the indictment 
for conspiracy. The evening before the interrogatory the 
producers' counsel received a telegram from the attorney- 
general of the state, announcing that the pipe-line people 
were complaining that the testimony which they would be 
called on to give on the morrow would be used against them 
in the conspiracy trial — as it undoubtedly would have been — 
and that he thought it only fair that their hearing be post- 
poned until after that suit. And so the defendants gained time 
— the chief desideratum of defendants who do not wish to 
fight. 

Soon after, the conspiracy case was again used to excellent 
advantage by the Standard people in the investigation which 
was being conducted in New York before the Hepburn Com- 
mission. Mr. Bostwick, the Standard Oil buyer, whose order 
to buy immediate shipment oil only at a discount had been 
one of the oil men's chief grievances for a year and a half, 
was summoned as a witness; but Mr. Bostwick too was under 
indictment for conspiracy, and when the examiners began 
to put questions to him which the producers were eager to 
have answered, he asked: "How can I, a man soon to be tried 
for conspiracy, be expected to answer these questions? I shall 
incriminate myself." He was sustained in his plea, and about 
all the Hepburn Commission got out of him was, "I refuse to 
answer, lest I incriminate myself." This, then, was the first 

[243] 



THE HISTORY OF THE STANDARD OIL COMPANY 
fruit of the producers' hasty and vindictive suit. It had shut 
the mouths of the important Standard witnesses. 

Discouraging as this discovery was, however, there was no 
reason why the suits against the railroads should not have 
been pushed through, and the testimony the officials unques- 
tionably could be made to give, now that Mr. Cassatt had 
set the pace, have been obtained. But the Producers' Union 
had lost sight for the moment of the fact that the fundamental 
difficulty in the trouble was the illegal discrimination of the 
common carriers. The Union was so much more eager to 
punish Mr. Rockefeller than it was to punish the railroads, 
that in bringing the suit for conspiracy it was even guilty 
of leniency toward the officials of the Pennsylvania. Certainly, 
if there was to be an indictment for conspiracy, all the sup- 
posed conspirators should have been included. It was by dis- 
criminations clearly contrary to the constitution of the state 
that the Pennsylvania Railroad had made it possible for Mr. 
Rockefeller to achieve his monopoly in Pennsylvania. The 
Union had proof of these rebates, but they let off Mr. Scott 
and Mr. Cassatt because "they professed the greatest desire 
to get rid of Standard domination, and were loudly asserting 
that they had been victimised and compelled at times to carry 
oil freights at less than cost." * Evidently the fate of the settle- 
ment the oil men had made seven years before with Mr. 
Scott and the presidents of the other oil-bearing roads had 
been forgotten. Naturally enough the railroads took advan- 
tage of these signs of leniency on the part of the producers, 
and brought all their enormous influence to bear on the state 
authorities to delay hearings and bring about a settlement. 
The Pennsylvania secured delays up to December, 1879, and 
then the Governor ordered the attorney-general to stop pro- 
ceedings against the road until the testimony had been taken 

* "A History of the Organisation, Purposes and Transactions of the General Council 
of the Petroleum Producers' Unions," 1880. 

[244] 



THE COMPROMISE OF 1880 

in the other four cases; that is, in the cases against (1) the 
United Pipe Lines; (2) the Lake Shore and Michigan South- 
ern; (3) the Dunkirk, Allegheny and Pittsburg, and (4) the 
Atlantic and Great Western. It was a heavy blow to the 
Union, for at the moment its hands were tied by the conspir- 
acy case, as far as the United Pipe Lines were concerned, and 
the three railroads were foreign corporations, only having 
branches in Pennsylvania, and accordingly very difficult to 
reach. The testimony could have been obtained, however, if the 
Union had been undivided in its interests. It would have been 
done, of course, if the state authorities had been willing to do 
what was their obvious duty. But the state authorities really 
asked nothing better than to escape further prosecution of 
the railroads. The administration was Republican, the Gov- 
ernor being Henry M. Hoyt. Mr. Hoyt had been elected in 
the fall of 1878 and so had inherited the suits from Governor 
Hartranft. He was pledged, however, to see them through, 
for before the election the Producers' Union had sent him the 
following letter: 

"Titusville, October 23, 1878. 
" Henry M. Hoyt: 

Sir — During the past few months, the Association of Producers of Petroleum, 
long oppressed in their immediate business and kindred industries by the persistent 
disregard of law by certain great corporations exercising their powers within the state 
of Pennsylvania, and daily subjected to incalculable loss by a powerful and corrupt 
combination of these corporations and individuals, have appealed to the executive, 
legislative and judiciary branches of the government for relief and protection. 

The questions which they raise for the consideration of the authorities and the people 
affect not only themselves but the whole public, not only the particular calling in 
which they are engaged, but nearly all kinds of business in the commonwealth and 
the nation. 

The Legislature has not responded to the demands made that the provisions of the 
constitution shall be speedily enforced by appropriate legislation. 

The present executive has caused proceedings to be instituted in the courts looking 
to relief, if it can be had by process of law, and these are still pending, while others 
may be begun. 

In view of the grave duties which will devolve upon you, should you be chosen to 

[245] 



THE HISTORY OF THE STANDARD OIL COMPANY 

the high office to which you aspire, in behalf of the Petroleum Producers' Association 
I ask from you a definite expression of your views upon the following subjects: 

First — Will you, if elected, recommend to the Legislature the passage of laws to 
carry into effect the third and twelfth sections of the sixteenth, and the third, seventh 
and twelfth sections of the seventeenth articles of the constitution of Pennsylvania ? 

Second — If such laws should be passed as referred to in the preceding question, 
will you, as Governor, approve them, if constitutional ? 

Third — Will you, as Governor, recommend and approve such other remedial legisla- 
tion as may be required to cure the evils set forth in a memorial to Governor Hartranft 
of August 15, 1878 ? 

Fourth — In the selection of the law officer of the state, will you, if elected, secure 
the services of one who will prosecute with vigour all proceedings already commenced 
or that may be instituted, having in view the subjection of corporations to the laws 
of the land ? Very respectfully, 

A. N. Perrin, 
Chairman Committee" 

Governor Hoyt's answers were eminently satisfactory: 

"There were provisions in the constitution," he wrote, "intended to compel the rail- 
roads and canal companies of the state to the performance of their duties as common 
carriers with fairness and equality, without discrimination, to all persons doing business 
over their lines. This policy is just and right. 

"If called to a position requiring official action, I would recommend and approve 
any legislation necessary and appropriate to carry into effect the sections of the con- 
stitution referred to. 

" It would be my duty, if elected, to see that no citizen, or class of citizens even, were 
subjected to hardship or injustice in their business, by illegal acts of corporations or 
others, where relief lay within executive control. Any proper measures or legislation 
which would effectually remedy the grievances set forth in the memorial addressed 
to Governor Hartranft would receive my recommendation and approval. 

"It would be my duty, if elected, to select only such officers as would enforce obe- 
dience to the constitution and laws, both by corporations and individuals, without 
fear or favour, and all such officers would be held by me to strict accountability for 
the full and prompt discharge of all their official duties." 

Governor Hoyt had indeed begun the suits, all of the testi- 
mony in regard to the Pennsylvania having been taken in his 
administration. This testimony must have proved to him that 
the transgressions of the road had been far more flagrant than 

[246] 






THE COMPROMISE OF 1880 

anyone dreamed of — that they had amounted simply to driv- 
ing certain men out of business in order to build up the busi- 
ness of certain other men. His evident duty, as his letter to 
the producers shows clearly enough that he realised, was to 
push the suits against the railroads even if the oil men entirely 
withdrew, but instead of that it became evident in the spring 
that he was using every opportunity to delay. Indeed, one 
reason the producers gave for bringing the conspiracy suit 
was that it would give the state authorities a scapegoat; that 
they would gladly act vigorously against the Standard if they 
were let off from prosecuting the Pennsylvania. Governor 
Hoyt now availed himself fully of the vacillation of the Union 
toward the railroads, using it as an excuse for not prosecuting 
the railroad cases. 

But if the producers were half-hearted toward the rail- 
roads they were whole-hearted enough toward the Standard. 
In spite of the fact that they had gotten in their own way, 
so to speak, by bringing their conspiracy suit, they felt con- 
vinced that they had material enough to win it on, and they 
sought the extradition of the non-residents who had been 
indicted. 

Early in June Governor Hoyt was called upon to issue a 
requisition for the extradition of John D. Rockefeller, Wil- 
liam Rockefeller, H. M. Flagler, J. A. Bostwick, Daniel 
O'Day, Charles Pratt and G. W. Girty. A full agreement 
was made before the state officials, but a decision was deferred 
repeatedly. Finally, worn out with waiting, Mr. Campbell, 
in a telegram to the Governor on July 29, threatened, if 
there was longer delay, to make his request for extradition 
through the public press. The answer from Harrisburg was 
that the attorney-general was sick and could not attend to 
the matter. Mr. Campbell wired back that he was tired of 
"addition, division, and silence," and he sent out the follow- 

Iing letter: 
[247] 



THE HISTORY OF THE STANDARD OIL COMPANY 

"Fairfield, July 31, 1879. 
"To His Excellency Henry M. Hoyt, 

Governor of the Commonwealth of Pennsylvania. 
Sir — On behalf of the producers of oil, whom I represent as president of their 
General Council, I most respectfully ask a decision at your hands, of the requisition 
on the Governor of the state of New York, for the surrender of the officers of the Stand- 
ard Oil Company, indicted by the Grand Jury of Clarion County, and now believed 
to be within the limits of the state of New York. 

The case was exhaustively argued before you, more than four weeks ago, and the 
great oil interest which I have the honour to represent has a right to a prompt decision 
on this vital question. If these parties — who for their own profit and its ruin control 
Pennsylvania's most valuable product, and compel its greatest carrier to undertake 
their warfare and to do their bidding at the sacrifice of its innocent stockholders — can, 
under the plea of being 'aliens,' defy the law of Pennsylvania and laugh at our im- 
potent attempts to reach them, the sooner it is known the better. It is possible that 
if we are denied protection within the limits of our commonwealth, we may obtain jus- 
tice by appealing to the courts of a sister state, where at least the defendants will be 
obliged to admit that they are residents. 

Your obedient servant, 

B. B. Campbell, 
President of Producers* Council." 

The Governor remained obdurate, nor was the request ever 
granted. In a message sent out in January, 1881, Governor 
Hoyt gave a review of the case — as he was compelled to do, 
so great was the popular criticism of his course in not push- 
ing the suits and in refusing the request for extradition — in 
which he attributed his refusal to the negotiations begun 
between the railroads and the Producers' Union. 

"The details of these negotiations, of course, need not, and did not, reach the office 
of the executive department," he said. "As a part of them, however, requests were 
presented in the interest of the petitioners (the Producers' Union) to the Governor, not 
to issue the requisition, followed again by requests that they be allowed to go out. 
Finding that the highest process of the commonwealth was being used simply as lever- 
age for and against the parties to these negotiations between contending litigants, and 
that, however entire and perfect might have been the good faith in which the criminal 
proceedings in Clarion County had been commenced, they were being regarded and 
treated as a mere make-weight in the stages of private diplomacy, I deemed it my 
duty, in the exercise of a sound discretion, to suspend action on the requisitions." 

[248] 




E. G. PATTERSON 

From 1872 to 1880 the chief advocate in the Oil 
Kegion of an interstate commerce law. Assisted in 
drafting the bills of 1876 and 1880. Abandoned 
the independent interests at the time of the com- 
promise of 1880. 




ROGER SHERMAN 

Chief counsel of the Petroleum Producers' Union 
from 1878 to 1880. From 1880 to 1885 counsel for 
the Standard Oil Company. From 1885 to his 
death in 1893 counsel of the allied independents. 



WMBIMHIMWIIIIIIIII II W i m IB M 





BENJ. B. CAMPBELL 

President of the Petroleum Producers' Union 
from 1878 to 1880. Independent refiner and 
operator until his death. 



JOSIAH LOMBARD 
Prominent independent refiner of N. Y. 



City, 



whose firm was the only one to keep its contract 
with the Tidewater Pipe Line Company in 1880. 



V* 



THE COMPROMISE OF 1880 

The writer has examined all the private correspondence 
which passed at this time between the litigants, but finds no 
proof of Governor Hoyt's statement that the Union at one time 
ceased its demands for Mr. Rockefeller's extradition. 

The conspiracy suit had been set for the August session 
of the Clarion County court. When August came the Stand- 
ard sought a continuance, and it was granted. The delay 
did not in any way discourage the producers, and when Mr. 
Rockefeller became convinced of this he tried conciliation. 
"Come, let us reason together," has always been a favourite 
proposition of Mr. Rockefeller. He would rather persuade 
than coerce, rather silence than fight. He had been making 
peace overtures ever since the suits began. The first had been 
in the fall of 1878, soon after they were instituted, when he sent 
the following letter to Captain Vandergrift: 

" Captain J. J. Vandergrift: 

My dear Sir — We are now prepared to enter into a contract to refine all the petroleum 
that can be sold in the markets of the world at a low price for refining. Prices of refined 
oil to be made by a joint committee of producers and refiners, and the profits to be de- 
termined by these; profits to be divided equitably between both parties. This joint 
interest to have the lowest net rates obtainable from railroads. If your judgment ap- 
proves, you may consult some of the producers upon this question. This would proba- 
bly require the United Pipe Lines to make contracts and act as a clearing-house for 
both parties. 

Very respectfully yours, 

J. D. Rockefeller." 

Captain Vandergrift handed the letter to the executive 

committee of the Producers' Union. It was returned to him 

without a reply. The producers had tried an arrangement of 

this kind with Mr. Rockefeller's National Refiners , Associ- 

ition in the winter of 1872 and 1873, an( * ll h ac * failed. The 

ifiners had thrown up their contract when they found they 

:ould get all the oil they wanted at a lower price than they 

tad contracted to pay the Producers' Union, from men who 

[249] 



THE HISTORY OF THE STANDARD OIL COMPANY 

had not gone into that organisation. The oil country was 
familiar, too, with the case of the H. L. Taylor Company, 
whose complaint against the Standard was referred to in the 
last chapter. Contracts of that sort were never meant to be J 
kept, they declared. They were meant as "sops, opiates." In 
November, 1878, after the testimony which had been brought 
out by the suit against the United Pipe Lines had been pretty 
well aired in the New York Sun and other papers, and one 
or two private suits against the railroads were creating a 
good deal of public discussion, an effort to secure a conference 
between the representatives of the Union and the Standard 
officials was made. The Union refused to go into it officially. 
A meeting was held, however, in New York on November 
29, at which several well-known oil men were present. It 
was announced to the press in advance that it was to be an 
important but secret meeting between the oil producers, refin- 
ers and Standard men ; that its object was to settle all griev- 
ances, and to secure a withdrawal of the impending suits. As 
soon as the news of this proposed meeting reached the Oil 
Regions, the officials of the Union promptly denied their 
connection with it. 

Although these early efforts to get a wedge into the Pro- 
ducers' Union and thus secure a staying of the suits had no 
results, the Standard was not discouraged — it never is : there 
is no evidence in its history that it knows what the word means. 
Not being able to handle the Union as a whole, the Standard 
began working on individuals. By March, 1879, the idea of a 
compromise had become particularly strong in Oil City. 
Indeed, one of the several reasons advanced for bringing the 
conspiracy suits was that such a proceeding would defeat the 
efforts the Oil City branch were making to bring about a settle 
ment with Mr. Rockefeller. Accordingly, when it became 
apparent to Mr. Rockefeller in the fall of 1879 that the pro- 
ducers meant to fight through the conspiracy suit, thoug 

[250] 






THE COMPROMISE OF 1880 

they might dally over the others, he notified Roger Sherman, 
counsel for the Union, that he wished to lay before him a 
proposition looking to a settlement. The president, Mr. Camp- 
bell, was in favour of receiving the proposition. "I have no 
idea they will present anything we can accept," he wrote Mr. 
Sherman. "Still it will furnish a first-rate gauge to test how 
badly they are scared." And the Standard was told that the 
Union would consider what they had to offer. u But it is a 
serious question — this of settlement," replied Mr. Rockefeller. 
"Our trial is set for October 28. We cannot get ready for 
that and prepare a proposition too. Why not postpone the 
trial?" This was done — December 15 being set. But no propo- 
sition was made to the producers for over six weeks — then 
they were asked to meet the Standard men on November 29 
in New York City. Piqued at the delay, the producers in- 
formed the Standard that they could no longer consider 
their proposition and that the trial would^be pushed. 

But again the Standard secured delay — this time by peti- 
tioning that the case be argued before the Supreme Court 
of the state. They declared that such was the state of public 
feeling in Clarion County that they could not obtain justice 
there. They charged the judges with bias and prejudice, 
declared secret societies were working against them, and 
called attention to the civil suits which were still hanging fire. 
Over this petition serious trouble arose in court — there was a 
wrangle between the judge and the Standard's counsel. The 
newspapers took it up — the whole state divided itself into 
camps, and the case was again postponed, this time until the 
first of the year. Postponement obtained, compromise was 
again proposed upon the basis of abandonment of all those 
methods of doing business which the producers claimed in- 
jured them, and as a mark of their sincerity the United Pipe 
Lines on December 24, 1879, issued an order announcing the 
abandonment of immediate shipment throughout the region. 

[251] 



THE HISTORY OF THE STANDARD OIL COMPANY 

A meeting between the legal advisers of the two parties to 
discuss the proposed terms was arranged for January 7, 1880, 
at the Fifth Avenue Hotel in New York City — the very time 
to which the trial of the case for conspiracy had been post- 
poned. It was hardly to be expected that when such negoti- 
ations were going on in New York the trial in Clarion County 
would be pushed very briskly. It was not. There was a hitch 
again, and for the fourth time proceedings were stayed. The. 
conferences, however, went on. 

These negotiations with the Standard continued for a 
month, and then, early in February, Mr. Campbell, the presi- 
dent of the Union, called a meeting of the Grand Council 
for February 19, 1880, in Titusville, Pennsylvania. For several 
weeks the Oil Regions had known that President Campbell 
and Roger Sherman, the leading lawyer of the Union, were 
in conference with the Standard officials. It was rumoured 
that they were arranging a compromise, and it was suspected 
that the meeting now called was to consider the terms. Natu- 
rally the proposition to be made was looked for with suspicion 
and curiosity. The meeting was the largest the Grand Council 
had held for many months. It was supposed to be secret, like 
all gatherings of the Union, but before the first session was 
over, the word spread over the Oil Regions that Mr. Campbell 
had brought to the meeting contracts with both Mr. Rocke- 
feller and Mr. Scott, and that they were receiving harsh criti- 
cism from the Grand Council. The very meagre accounts 
which exist of this gathering, historic in oil annals, show that 
it was one of the most exciting which was ever held in the 
country, and one can well believe this when one considers the 
bitter pill the council was asked to swallow that day. Mr. 
Campbell began the session by reporting that all the suits at 
which they had been labouring for nearly two years had been 
withdrawn, and that in return for their withdrawal the Stand- 
ard and the Pennsylvania Railroad officials had signed con- 

[252] 



THE COMPROMISE OF 1880 

tracts to cease certain of the practices of which the producers 
complained. 

The Standard contract, which Mr. Campbell then presented, 
pledged Mr. Rockefeller, and some sixteen associates, whose 
names were attached to the document, to the following policy: 

1. They would hereafter make no opposition to an entire 
abrogation of the system of rebates, drawbacks and secret rates 
of freight in the transportation of petroleum on the railroads. 

2. They withdrew their opposition to secrecy in rate mak- 
ing — that is, they promised that they would not hereafter 
receive any rebate or drawback that the railroad company 
was not at liberty to make known and to give to other shippers 
of petroleum. 

'3. They abandoned entirely the policy which they had been 
pursuing in the management of the United Pipe Lines — that 
is, they promised that there should be no discrimination what- 
ever hereafter between their patrons; that the rates should 
be reasonable and not advanced except on thirty days' notice; 
that they would make no difference between the price of crude 
in different districts excepting such as might be properly based 
upon the difference in the quality of the oil ; that they would 
receive, transport, store and deliver all oil tendered to them, 
up to a production of 65,000 barrels a day. And if the produc- 
tion should exceed that amount they agreed that they would 
not purchase any so-called "immediate shipment" oil at a 
discount on the price of certificate oil. 

4. They promised hereafter that when certificates had been 
given for oil taken into the custody of the pipe-lines, the 
transfer of these certificates should be considered as a delivery 
of the oil, and the tankage of the seller would be treated as 



:ree.* 



Mr. Rockefeller also agreed in making this contract to pay 

* See Appendix, Number 35. Contract of Petroleum Producers' Union with Stand- 
rd Combination. 

[253] 



THE HISTORY OF THE STANDARD OIL COMPANY 

the Producers' Union $40,000 to cover the expense of their 
litigation. In return for this money and for the abandonment of 
secret rebates and of the pipe-line policy to which he had held 
so strenuously, what was he to receive? He was not to be 
tried for conspiracy. And that day, after the contract had 
been presented to the Grand Council, Mr. Campbell sent the 
following telegram : 

"Titusville, February 19, 1880. 
* To His Excellency Henry M. Hoyt, 

Governor of the Commonwealth of Pennsylvania. 
Sir — As prosecutor in the case of the Commonwealth vs. J. D. Rockefeller, Number 
25, April Sessions of Clarion County, I consent to the withdrawal of the requisition 
asked of you for extradition of J. D. Rockefeller et al. y the same having been in your 
hands undecided since July last and a nolle prosequi having been entered by leave 
of Court of Clarion County in the case, and I will request William L. Hindman, the 
prosecuting attorney, to forward a formal withdrawal. 

Your obedient servant, 

B. B. Campbell." 

The contract with the Pennsylvania which was signed by 
Mr. Scott agreed, in consideration of the withdrawal of the suit 
against the road, to the following policy: 

1. That it would make known to all shippers all rates of 
freight charged upon petroleum. [This was an abolition of 
secret rates.] 

2. If any rates of freight were allowed one shipper as 
against another, on demand that rate was to be made known. 

3. There should be no longer any discrimination in the 
allotment and distribution of cars to shippers of petroleum. 

4. Any rebate allowed to a large shipper was to be reason- 
able.* 

There were both humiliation and bitterness in the Council 
when the report was read — humiliation and bitterness that 

* See Appendix, Number 36. Agreement between B. B. Campbell and the Penn' 
sylvania Railroad Company. 

[254] 



THE COMPROMISE OF 1880 

after two years of such strenuous fighting all that was achieved 
was a contract which sacrificed what everybody knew to be 
the fundamental principle, the principle which up to this 
point the producers had always insisted must be recognised 
in any negotiation — that the rebate system was wrong and 
must not be compromised with. Hard speeches were made, 
and Mr. Campbell's head was bowed more than once while 
big tears ran down his cheeks. He had worked long and hard. 
Probably most of the members of the Grand Council who 
were present had a consciousness that no one of them had 
done anywhere near what Mr. Campbell had done toward 
prosecuting their cause, and though they might object to the 
compromise, they could not blame him, knowing all the diffi- 
culties which had been put in the way. So they accepted the 
report, thanking him for his fidelity and energy, but not fail- 
ing to express their disapproval of the reservation in regard 
to the rebate system. They ended their meeting by a resolu- 
tion bitterly condemning the courts, the state administration 
at Harrisburg, and corporations in general : 

"We declare that by the inefficiency and weakness of the secretary of internal affairs 
in the year 1878; by the interposition on more than one occasion of the attorney-gen- 
eral in 1879, by which the taking of testimony was prevented; by the failure of the pres- 
ent government for many months, either to grant or deny the requisition for criminals 
indicted for crime, within the commonwealth of Pennsylvania, fugitives to other 
states; and by the interference of some of the judges of the Supreme Court, by an 
extraordinary and, according to the best legal judgment of the land, unlawful proceed- 
ing, by which the trial of an indictment for misdemeanour pending in a local court was 
delayed and prevented, the alarming and most dangerous influence of powerful cor- 
porations has been demonstrated. While we accept the inevitable result forced upon us 
by these influences, we aver that the contest is not over and our objects not attained, 
but we all continue to advocate and maintain the subordination of all corporations to 
the laws, the constitution, and the will of the people, however and whenever expressed; 
that the system of freight discrimination by common carriers is absolutely wrong in 
principle, and tends to the fostering of dangerous monopolies; and that it is the duty 
of the government, by legislation and executive action, to protect the people from 
their growing and dangerous power." 

[25s] 



THE HISTORY OF THE STANDARD OIL COMPANY 

And with this resolution the second Petroleum Producers' 
Union formed to fight Mr. Rockefeller came to an end. 

By the morning of February 20 the Oil Regions knew 
of the compromise. The news was received in sullen anger. 
It was due to the cowardice of the state officials, the corrupt- 
ing influence of corporations, the oil men said. They blamed 
everybody but themselves, and yet if they had done their 
duty the suits would never have been compromised. The sim- 
ple fact is that the mass of oil men had not stood by their 
leaders in the hard fight they had been making. These leaders, 
Mr. Campbell the president, Mr. Sherman the chief counsel, 
and Mr. Patterson the head of the legislative committee, had 
given almost their entire time for two years to the work of the 
Union. The offices of Mr. Campbell and Mr. Patterson were 
both honorary, and they had both often used their private 
funds in prosecuting their work. Mr. Sherman gave his ser- 
vices for months at a time without pay. No one outside of 
the Council of the Union knew the stress that came upon these 
three men. Up to the decision to institute the conspiracy suit 
they had worked in harmony. But when that was decided upon 
Mr. Patterson withdrew. He saw how fatal such a move must 
be, how completely it interfered with the real work of the 
Union, forcing common carriers to do their duty. He saw 
that the substantial steps gained were given up and that the 
work would all have to be done over again if their suit went 
on. Mr. Campbell believed in it, however, and Mr. Sherman, 
whether he believed in it or not, saw no way but to follow 
his chief. The nine months of disappointment and disillusion 
which followed were terrible for both men. They soon saw 
that the forces against them were too strong, that they would 
never in all probability be able to get the conspiracy suit tried, 
and that so long as it was on the docket the proper witnesses 
could not be secured for the suits against the railroads. Finally 
it came to be a question with them what out of the wreck of 

[256] 



THE COMPROMISE OF 1880 

their plans and hopes could they save? And they saved what 
the compromise granted. If the oil producers they repre- 
sented, a body of some 2,000 men, had stood behind them 
throughout 1879 as they did in 1878 the results would 
have been different. Their power, their means, were derived 
from this body, and this body for many months had been giv- 
ing them feeble support. Scattered as they were over a great 
stretch of country, interested in nothing but their own oil 
farms, the producers could only be brought into an alliance 
by hope of overturning disastrous business conditions. They 
all felt that the monopoly the Standard had achieved was a 
menace to their interests, and they went willingly into the 
Union at the start, and supported it generously, but they were 
an impatient people, demanding quick results, and when they 
saw that the relief the Union promised could only come 
through lawsuits and legislation which it would take perhaps 
years to finish, they lost interest and refused money. At the 
first meeting of the Grand Council of the Union in Novem- 
ber, 1878, there were nearly 200 delegates present — at the 
last one in February, 1880, scarcely forty. Many of the local 
lodges were entirely dead. Not even the revival in the sum- 
mer of 1879 of the hated immediate shipment order, which 
had caused so much excitement the year before, but which had 
not been enforced long because of the uprising, brought them 
back to the Union. In July the order had been put in operation 
again in a fashion most offensive to the oil men, it being an- 
nounced by the United Pipe Lines that thereafter oil would 
be bought by a system of sealed bids. Blanks were to be fur- 
nished the producers, the formula of which ran: 

Bradford, Pennsylvania, 187 . . 

I hereby offer to sell J. A. Bostwick barrels crude oil, of forty-two gallons 

per barrel, at ... . cents, at the wells, for shipment from the United Pipe Lines, within 
the next five (5) days, provided that any portion of the oil not delivered to you within 
the specified time shall be considered cancelled. 

[257] 



THE HISTORY OF THE STANDARD OIL COMPANY 

There was a frightful uproar in consequence. The morning 
after this announcement several hundred men gathered in 
front of the United Pipe Line's office in Bradford, and held 
an open-air meeting. They had a band on the ground which 
played "Hold the Fort"; and the following resolutions were 
adopted : 

" Resolved, That the oil producers of the Northern District in meeting assembled 
do maintain and declare that the present shipment order is infamous in principle and 
disreputable in practice, and we hereby declare that we will not sell one barrel of oil 
in conformity with the requirements of the said order. And we pledge our lives, our 
fortunes and our sacred honour to resort to every legal means, to use every influence 
in our power to prevent any sales under the said order. And we also declare that the 
United Pipe Lines shall hereafter perform their duty as common carriers under the 
law." 

That night a battalion of some 300 masked men in robes 
of white marched through the streets of Bradford, groan- 
ing those that they suspected of being in sympathy with the 
Standard methods, and cheering their friends. Again there 
appeared there, that night, all over the upper oil country, 
cabalistic signs, which had been seen there often the year 
before. The feeling was so intense, and the danger of riot 
so great, that twenty-four hours after the order for sealed 
bids was given, it was withdrawn. The outbreak aroused Mr. 
Campbell's hope that it might be possible at this moment to 
arouse the lodges, and he wrote a prominent oil man of Brad- 
ford asking his opinion. In reply he received the following 
letter. It shows very well what the leaders had to contend 
against. It shows, too, the point of view of a very frank and 
intelligent oil producer: 

" Bradford, Pennsylvania, July 30, 1870. 
" B. B. Campbell, J * * 

Parnassus, Pennsylvania. 

Dear Sir — Your despatch of yesterday from O. C. has only just reached me. As 

I cannot say what I want to over the wires I reply by mail. 

[258] 



THE COMPROMISE OF 1880 

You ask if the high-sounding wording of the declaration of rights of the producers 
made at their mass-meeting, held here on Monday, in which they pledged their lives, 
fortunes and sacred honours, means liberal subscriptions to the Council funds. I reply 
with sorrow and humiliation — / fear not. All this high-flown talk is buncombe of 
the worst kind. The producers are willing to meet in a mass-meeting held out of doors 
where it costs nothing even for rent of a hall, and pass any kind of a resolution that is 
offered. It costs nothing to do this, but when asked to contribute a dollar to the legal 
prosecution of these plunderers, robbers, and fugitives from justice, whom they are 
denouncing in their resolution, they either positively refuse, say that the Council is 
doing nothing, that the suits are interminable and will never end, that there is no 
justice to be obtained in the courts of Pennsylvania, etc., etc., or else plead poverty 
and say they have contributed all that they are able to. 

True, the producers are poor and the suits and legal proceedings are slow, and 
there is much to discourage them, but I tell you, my honoured chief, that the true 
inwardness of this state of affairs is, that the people of the Oil Regions have by slow 
degrees and easy stages been brought into a condition of bondage and serfdom by 
the monopoly, until now, when they have been aroused to a realisation of their con- 
dition, they have not the courage and manhood left to enable them to strike a blow 
for liberty. And these are the people for whom you and your few faithful followers 
in the Council are labouring, spending (I fear wasting) your substance — neglecting 
your own interest to advance theirs, and all for what good — " cui bono"? 

I fear you will say that I am discouraged. No, not discouraged, but disgusted with 
the poor, spiritless, and faint-hearted people whom you are labouring so hard to 
liberate from bondage. As to the prospects of raising funds for the prosecution of the 
suits by subscription or assessments on the Unions, I am sorry to say that I fear it is 
impossible — at least it is impossible for me to make any collections — and right here 
let me make a suggestion. I often feel that the fault may not be with the people, but 
with the writer. I would therefore suggest that you select from among the members 
of the Council any good man whom you think has the power of convincing these people 
that their only hope of relief lies in sustaining you in the prosecution of the suits, and 
therefore they must contribute to the fund. If you will do this, I will promise you 
that he will be hospitably received and favourably introduced by the writer. But as 
for depending on the unaided efforts of myself to raise funds, I fear it would be useless. 

I do not write this, my friend, with a view of throwing any discouragement in your 
path, which, God knows, is rugged and thorny enough, but I must give vent to my 
righteous indignation in some way, and ask you are the producers as a class (nothing 

but a d d cowardly, disorganised mob as they are) worth the efforts you are putting 

forth to save them ? 

As for myself, a single individual (and I can speak for no others), I am determined 
to stand with you until the end, with my best strength and my last dollar." 

[ 259 ] 



THE HISTORY OF THE STANDARD OIL COMPANY 

Now, what was this loose and easily discouraged organisa- 
tion opposing? A compact body of a few able, cold-blooded 
men — men to whom anything was right that they could get, 
men knowing exactly what they wanted, men who loved the 
game they played because of the reward at the goal, and, 
above all, men who knew how to hold their tongues and wait. 
"To Mr. Rockefeller,' , they say in the Oil Regions, "a day 
is as a year and a year as a day. He can wait, but he never 
gives up." Mr. Rockefeller knew the producers, knew how 
feeble their staying qualities in anything but the putting down 
of oil wells, and he may have said confidently, at the begin- 
ning of their suits against him, as it was reported he did say, 
that they would never be finished. They had not been finished 
from any lack of material. If the suits had been pushed but 
one result was possible, and that was the conviction of both 
the Standard and the railroads; they had been left unfinished 
because of the impatience and instability of the prosecuting 
body and the compactness, resolution and watchfulness of 
the defendants. 

The withdrawal of the suits was a great victory for Mr. 
Rockefeller. There was no longer any doubt of his power in 
defensive operations. Having won a victory, he quickly went 
to work to make it secure. The Union had surrendered, but 
the men who had made the Union remained; the evidence 
against him was piled up in indestructible records. In time 
the same elements which had united to form the serious oppo- 
sition just overthrown might come together, and if they should 
it was possible that they would not a second time make the 
mistake of vacillation. The press of the Oil Regions was 
largely independent. It had lost, to be sure, the audacity, the 
wit, the irrepressible spirit of eight years before when it 
fought the South Improvement Company. Its discretion had 
outstripped its courage, but there were still signs of intelli- 

[ 260] 



THE COMPROMISE OF 1880 

gent independence in the newspapers. Mr. Rockefeller now 
entered on a campaign of reconciliation which aimed to pla- 
cate, or silence, every opposing force. 

Many of the great human tragedies of the Oil Regions lie 
in the individual compromises which followed the public 
settlement of 1880; for then it was that man after man, from 
hopelessness, from disgust, from ambition, from love of money, 
gave up the fight for principle which he had waged for seven 
years. "The Union has surrendered," they said; "why fight 
on?" This man took a position with the Standard and became 
henceforth active in its business ; that man took a salary and 
dropped out of sight; this one went his independent way, but 
with closed lips; that one shook the dust of the Oil Regions 
from his feet and went out to seek "God's country," asking 
only that he should never again hear the word "oil." The 
newspapers bowed to the victor. A sudden hush came over 
the region, the hush of defeat, of cowardice, of hopelessness. 
Only the "poor producer" grumbled. "You can't satisfy the 
producer," Mr. Rockefeller often has had occasion to remark 
benignantly and pitifully. The producer alone was not "con- 
vinced." He still rehearsed the series of dramatic attacks and 
sieges which had wiped out independent effort. He taught 
his children that the cause had been sold, and he stigmatised 
the men who had gone over to the Standard as traitors. Scores 
of boys and girls grew up in the Oil Regions in those days 
with the same feeling of terrified curiosity toward those who 
had "sold to the Standard" that they had toward those who 
had "been in jail." The Oil Regions as a whole was at heart 
as irreconcilable in 1880 as it had been after the South Im- 
provement Company fight, and now it had added to its sense 
of outrage the humiliation of defeat. Its only immediate hope 
now was in the success of one of the transportation enterprises 
which had come into existence with the uprising of 1878 and 

[261] 



THE HISTORY OF THE STANDARD OIL COMPANY » 

to which it had been for two years giving what support it 
could. This enterprise was the seaboard pipe-line which, as 
we have seen, Messrs. Benson, McKelvy and Hopkins had 
undertaken. 



[262] 



APPENDIX 



r 



NUMBER i (See page 7) 

PROFESSOR SILLIMAN'S REPORT ON PETROLEUM 
[From " The Early and Later History of Petroleum," by J. T. Henry, pages 38-54.] 

Messrs. Eveleth, Bissell and Reed. 

Gentlemen: — I herewith offer you the results of my somewhat extended researches 
upon the rock-oil, or petroleum, from Venango County, Pennsylvania, which you 
have requested me to examine with reference to its value for economical purposes. 

Numerous localities, well known in different parts of the world, furnish an oily fluid 
exuding from the surface of the earth, sometimes alone in "tar springs," as they are 
called in the Western United States; frequently it is found floating upon the surface 
of water in a thin film, with rainbow colours, or in dark globules, that may, by me- 
chanical means, be separated from the fluid on which it swims. 

In some places wells are sunk for the purpose of accumulating the product in a 
situation convenient for collection by pumping the water out. The oil exudes on the 
shores of lakes and lagoons, or rises from springs beneath the beds of rivers. Such are 
the springs of Baku, in Persia, and the wells of Amiano, in the duchy of Parma, in 
Italy. The usual geological position of the rocks furnishing this natural product 
is in the coal measures — but it is by no means confined to this group of rocks, since 
it has been found in deposits much more recent, and also in those that are older — but 
in whatever deposits it may occur, it is uniformly regarded as a product of vegetable 
decomposition. Whether this decomposition has been effected by fermentation only, 
or by the aid of an elevated temperature, and distilled by heated vapour, is perhaps 
hardly settled. 

It is interesting, however, in this connection to remember that the distillation, at 
an elevated temperature, of certain black, bituminous shales in England and France 
has furnished large quantities of an oil having many points of resemblance with naphtha, 
the name given to this colourless oil, which is the usual product of distilling petroleum. 
The very high boiling point of most of the products of the distillation of the rock 
oil from Venango County, Pennsylvania, would seem to indicate that it was a pyro- 
genic (fire-produced) product. 

[a6 5 ] 



THE HISTORY OF THE STANDARD OIL COMPANY 

Bitumen, asphaltum, mineral pitch, chapapote, etc., etc., are names variously given 
to the more or less hard, black, resinous substance which is produced usually from 
the exposure of petroleum to the air, and is found either with or without the fluid 
naphtha or petroleum. The most remarkable examples of the occurrence of these 
substances, so intimately connected with the history of rock-oil, are the Lake Asphal- 
tites of the Dead Sea, so memorable in history, the well-known Bitumen Lake of 
Trinidad, and the deposits of mineral pitch or chapapote in Cuba. In one of the 
provinces of India, vast quantities of petroleum are annually produced, the chief con- 
sumption being local, for fuel and lights, but a portion is also exported to Europe 
for the production of naphtha. In the United States, many points on the Ohio and 
its tributaries are noted as producing this oil; nearly all of them within the coal meas- 
ures. A detailed history of these various localities can be found recorded in books of 
science, and their repetition here would be out of place. 

GENERAL CHARACTER OF THE CRUDE PRODUCT 

The crude oil, as it is gathered on your lands, has a dark brown colour, which, by 
reflected light, is greenish or bluish. It is thick even in warm weather — about as i 
thick as thin molasses. In very cold weather it is somewhat more stiff, but can always 
be poured from a bottle even at 15 below zero. Its odour is strong and peculiar, and 
recalls to those who are familiar with it the smell of bitumen and naphtha. Exposed 
for a long time to the air, it does not thicken or form a skin on its surface, and in I 
no sense can it be called a drying oil. The density of the crude oil is .882, water being 
1 .000. It boils only at a very high temperature, and yet it begins to give off a vapour j 
at a temperature not greatly above that of boiling water. It takes fire with some 
difficulty and burns with an abundant smoky flame. It stains paper with the appearance ;j 
of ordinary fat oils, and feels smooth and greasy between the fingers. It is frequently jj 
used in its crude state to lubricate coarse machinery. In chemical characters, it is 
entirely unlike the fat oils. Most of these characters are common to petroleum from 
various places. In one important respect, however, the product of your lands differs j 
from that obtained in other situations, that is, it does not, by continued exposure 
to the air, become hard and resinous like mineral pitch or bitumen. I have been 
informed by those who have visited the locality, that on the surface of the earth above 
the springs which furnish your oil there is no crust or deposit of this sort such as | 
have seen in other situations where petroleum or mineral tar is flowing. This difference 
will be seen to be of considerable importance, as it is understood and represented 
that this product exists in great abundance upon your property, that it can be gathered 
wherever a well is sunk in the soil, over a great number of acres, and that it is unfailing 
in its yield from year to year. The question naturally arises, Of what value is it in the 
arts, and for what uses can it be employed ? These researches answer these inquiries. 

[266] 



APPENDIX, NUMBER I 



EXAMINATION OF THE OIL 



To determine what products might be obtained in the oil, a portion of it was sub- 
mitted to fractional distillation.* The temperature of the fluid was constantly regulated 
by a thermometer, the heat being applied first by a water bath, and then by a bath 
of linseed oil. This experiment was founded upon the belief that the crude product 
contained several distinct oils, having different boiling points. The quantity of material 
used in this experiment was 304 grammes. The thermometer indicated the degrees 
of the Centigrade scale, but, for convenience, the corresponding degrees of Fahren- 
heit's scale are added. The water bath failed to distil any portion of the oil at ioo° 
C. (=212° F.), only a small quantity of acid water came over. An oil bath, linseed 
oil, was then substituted, and the temperature was regularly raised by slow degrees 
until distillation commenced. From that point the heat was successively raised by 
stages of ten degrees, allowing full time at each stage for complete distillation of all 
that would rise at that temperature before advancing to the next stage. The results 
of this tedious process are given in the annexed table — 304 grammes of crude oil, 
submitted to fractional distillation, gave 

TEMPERATURE gUANTITY 

1st Prod, at ioo° C. = 213 F. (acid water) 5 gms. 

2nd " " 140 C. to 150 C.= 28 4 °to 302 F. 26 " 

3rd " " 150 C. " 160 C.= 302° " 320 F. 29 " 

4th " " 160 C. " 170 C.= 320° " 388 F. 38 " 

5th " " 170 C. " 180 C.= 338° " 367 F. 17 " 

6th " " 180 C. " 200 C.= 356° " 392 F. 16 " 

7th " " 200 C. " 220 C.= 392° " 428 F. 17 " 

8th " " 220 C. " 270 C.= 428° " 518 F. 12 * 

Whole quantity distilled by this method 160 " 

Leaving residue in the retort , . . . 144 

Original quantity 304 

Product No. 1, as above remarked, was almost entirely water, with a few drops of 
colourless oil, having an odour similar to the original fluid, but less intense. 

Product No. 2 was an oil perfectly colourless, very thin and limpid, and having 
an exceedingly persistent odour, similar to the crude oil, but less intense. 

Product No. 3 was tinged slightly yellow, perfectly transparent, and apparently 
as limpid as the second product, with the same odour. 

* Fractional distillation is a process intended to separate various products in mixture, and having unlike 
boiling-points, by keeping the mixture contained in an alembic at regulated successive stages of tempera- 
ture as long as there it any distillate at a given point, and then raising the heat to another degree, etc. 

[267] 



THE HISTORY OF THE STANDARD OIL COMPANY 

Product No. 4 was more decidedly yellowish than the last, but was in no other 
respect distinguishable from it. 

Product No. 5 was more highly coloured, thicker in consistence, and had a de- 
cided empyreumatic odour. 

Product No. 6. This and the two subsequent products were each more highly 
coloured and denser than the preceding. The last product had the colour and con- 
sistency of honey, and the odour was less penetrating than that of the preceding oils. 
The mass of crude product remaining in the retort (equal 47 .4 per cent.) was a dark, 
thick, resinous-looking varnish, which was so stiff when cold that it could be inverted 
without spilling. This showed no disposition to harden or skin over by exposure 
to the air. The distillation was arrested at this point in glass, by our having reached 
the limit of temperature for a bath of linseed oil. The density of the several products 
of this distillation shows a progressive increase, thus: 



DENSITY 

No. 2 733 

No. 3 752 

No. 4 766 

No. 5 776 



DINSITY 

No. 6 800 

No. 7 848 

No. 8 854 



To form an idea of the comparative density of these several products, it may be 
well to state that sulphuric ether, which is one of the lightest fluids known, has a 
density of . 736, and alcohol, when absolutely pure, . 800. 

The boiling points of these several fluids present some anomalies, but are usually 
progressive, thus, No. 2 gave signs of boiling at 115 C. (=239° F.), and boiled vigor- 
ously and remained constant at 225 C. to 228 C. (=437° to 442 F.). No. 3 began 
to boil 120 (=248° F.), rose to 270 (=518° F.), where it remained constant. No. 
4 began to vapourise at 140 (=284° F.), rose to 290 (=554° F.), where it remained 
constant. On a second heating the temperature continued to rise, and passed 305 
(=581° F.). No. 5 gave appearance of boiling at 160 (=320° F.), boiling more 
vigorously as the heat was raised, and was still rising at 308° (=581° F.). No. 6 com- 
menced boiling at 135 (=275° F.), boiled violently at 160 (=320° F.), and continued 
rising above the range of the mercurial thermometer. No. 7 commenced ebullition 
at the same temperature as No. 6, and rose to 305 (=581° F.), where the ebullition 
was not very active. Much time was consumed in obtaining these results. We infer 
from them that the rock-oil is a mixture of numerous compounds, all having essentially 
the same chemical constitution, but differing in density and boiling points, and capable 
of separation from each other, by a well-regulated heat. 

The uncertainty of the boiling points indicates that the products obtained at the 
temperatures named above were still mixtures of others, and the question forces 
itself upon us, whether these several oils are to be regarded as educts (i. e., bodies 

[268] 






APPENDIX, NUMBER I 

previously existing, and simply separated in the process of distillation), or whether 
they are not rather produced by the heat and chemical change in the process of dig- 
tillation. The continued application of an elevated temperature alone is sufficient 
to effect changes in the constitution of many organic products, evolving new bodies 
not before existing in the original substance. 

PROPERTIES OF THE DISTILLED OILS 

Exposed to the severest cold of the past winter, all the oils obtained in this dis- 
tillation remained fluid. Only the last two or three appeared at all stiffened by a 
cold of 1 5 below zero, while the first three or four products of distillation retained a 
>erfect degree of fluidity. Exposed to air, as I have said, they suffer no change. The 
rhemical examination of these oils showed that they were all composed of carbon and 
lydrogen, and probably have these elements in the same numerical relation. When 
irst distilled they all had an acid reaction, due to the presence of a small quantity 
)f free sulphuric acid, derived from the crude oil. This was entirely removed by a weak 
ilkaline water, and even by boiling on pure water. Clean copper remained untarnished 
in the oil which had thus been prepared, showing its fitness for lubrication, so far as 
absence of corrosive quality is concerned. The oils contain no oxygen, as is clearly 
shown by the fact that clean potassium remains bright in them. Strong sulphuric 
acid decomposes and destroys the oil entirely. Nitric acid changes it to a yellow, oily 
fluid, similar to the changes produced by nitric acid on other oils. Hydrochloric, 
chromic, and acetic acids do not affect it. Litharge and other metallic oxyds do not 
change it, or convert it in any degree to a drying oil. Potassium remains in it un- 
affected, even at a high temperature. Hydrates of potash, soda, and lime are also 
without action upon it. Chloride of calcium and many other salts manifest an equal 
indifference to it. Distilled with bleaching powders (chloride of lime) and water in 
the manner of producing chloroform, the oil is changed into a product having an odour 
and taste resembling chloroform. Exposed for many days in an open vessel, at a 
regulated heat below 21 2°, the oil gradually rises in vapour, as may be seen by its 
staining the paper used to cover the vessel from dust, and also by its sensible diminution. 
Six or eight fluid ounces, exposed in this manner in a metallic vessel for six weeks 
or more, the heat never exceeding 200 , gradually and slowly diminished, grew yellow, 
and finally left a small residue of dark brown, lustrous-looking resin, or pitchy substance, 
which in the cold was hard and brittle. The samples of oil employed were very nearly 
colourless. This is remarkable when we remember that the temperature of the dis- 
tillation was above 500 F. The oil is nearly insoluble in pure alcohol, not more than 
4 or 5 per cent, being dissolved by this agent. In ether the oil dissolves completely, 
and on gentle heating is left unchanged by the evaporisation of the ether. India-rubber 
is dissolved by the distilled oil to a pasty mass, forming a thick, black fluid which, 

[269] 



THE HISTORY OF THE STANDARD OIL COMPANY 

after a short time, deposits the India-rubber. It dissolved a little amber, but only 
sufficient to colour the oil red. It also dissolves a small portion of copal in its natural 
state, but after roasting, the copal dissolves in it as it does in other oils. 



USE FOR GAS-MAKING 

The crude oil was tried as a means of illumination. For this purpose, a weighed 
quantity was decomposed, by passing it through a wrought-iron retort filled with 
carbon, and ignited to full redness. The products of this decomposition were received 
in a suitable apparatus. It produced nearly pure carburetted hydrogen gas, the most 
highly illuminating of all the carbon gases. In fact, the oil may be regarded as chemi- 
cally identical with illuminating gas in a liquid form. The gas produced equalled 
ten cubic feet to the pound of oil. It burned with an intense flame, smoking in the 
ordinary gas jet, but furnishing the most perfect flame with the Argand burner. 

These experiments were not prosecuted further, because it was assumed that other 
products, now known and in use, for gas-making, might be employed at less expense 
for this purpose, than your oil. Nevertheless, this branch of inquiry may be worthy 
of further attention. 



DISTILLATION AT A HIGHER TEMPERATURE 

The results of the distillation at a regulated temperature in glass led us to believe 
that in a metallic vessel, capable of enduring a high degree of heat, we might obtain 
a much larger proportion of valuable products. A copper still, holding five or six 
gallons, was therefore provided, and furnished with an opening, through which a 
thermometer could be introduced into the interior of the vessel. Fourteen imperial 
quarts (or, by weight, 560 ounces) of the crude product were placed in this vessel, 
and the heat raised rapidly to about 280 C. (= 536 F.), somewhat higher than the 
last temperature reached in the first distillation. At this high temperature the dis- 
tillation was somewhat rapid, and the product was easily condensed without a worm. 
The product of the first stage was 130 ounces (or over 28 per cent.), of a very light- 
coloured thin oil, having a density of . 792. This product was also acid, and as before, 
the acid was easily removed by boiling with fresh water. The temperature was now 
raised to somewhat above 300 C. (=572° F.), and 123 ounces more distilled, of a 
more viscid and yellowish oil, having a density of .865. This accounts for over 43 
per cent, of the whole quantity taken. The temperature being raised now above the 
boiling point of mercury, was continued at that until 170 ounces, or over 31 per cent., 
of a dark brown oil had been distilled, having a strong empyreumatic odor. Upon 
standing still for some time, a dark blackish sediment was seen to settle from this 

[270] 



APPENDIX, NUMBER I 

portion, and on boiling it with water the unpleasant odour was in a great degree re- 
moved, and the fluid became more light-coloured and perfectly bright. (It was on a 
sample of this that the photometric experiments were made.) The next portion, 
distilled at about 700 F., gave but about 17 ounces, and this product was both lighter 
in colour and more fluid than the last. It now became necessary to employ dry hickory 
wood as a fuel, to obtain flame and sufficient heat to drive over any further portions 
of the residue remaining in the alembic. 

It will be seen that we have already accounted for over 75 per cent, of the whole 
quantity taken. There was a loss on the whole process of about 10 per cent .. made up, 
in part, of a coaly residue that remained in the alembic, and partly of the unavoidable 
loss resulting from the necessity of removing the oil twice from the alembic, during 
the process of distillation, in order to change the arrangements of the thermometer, 
and provide means of measuring a heat higher than that originally contemplated. 

About 15 per cent, of a very thick, dark oil completed this experiments This last 
product, which came off slowly at about 750 F., is thicker and darker than the original 
oil, and when cold, is filled with a dense mass of pearly crystals. These are paraffine, a 
peculiar product of the destructive distillation of many bodies in the organic kingdom. 
This substance may be separated, and obtained as a white body, resembling fine 
spermaceti, and from it beautiful candles have been made. The oil in which the crystals 
float is of a very dark colour, and by reflected light is blackish green, like the original 
crude product. Although it distills at so high a temperature, it boils at a point not 
very different from the denser products of the first distillation,, The paraffine, with 
which this portion of the oil abounds, does not exist ready-formed in the original 
crude product; but it is a result of the high temperature employed in the process of 
distillation, by which the elements are newly arranged. 

I am not prepared to say, without further investigation, that it would be desirable 
for the company to manufacture this product in a pure state, fit for producing candles 
(a somewhat elaborate chemical process); but I may add that, should it be desirable 
to do so, the quantity of this substance produced may probably be very largely in- 
creased by means which it is now unnecessary to mention. 

Paraffine derives its name from the unalterable nature of the substance, under 
the most powerful chemical agents. It is white, in brilliant scales of a greasy lustre; 
it melts at about 11 6°, and boils at over 700 F.; it dissolves in boiling alcohol and 
ether, and burns in the air with a brilliant flame. Associated with paraffine are portions 
of a very volatile oil, eupione, which boils at a lower temperature, and by its presence 
renders the boiling point of the mixture difficult to determine. I consider this point 
worthy of further examination than I have been able at present to give it, i.e., whether 
the last third, and possibly the last half, of the petroleum, may not be advantageously 
so treated as to produce from it the largest amount of paraffine which it is able to 
produce. 

[271] 



THE HISTORY OF THE STANDARD OIL COMPANY 

The result of this graduated distillation, at a high temperature, is that we have 
obtained over 90 per cent, of the whole crude product in a series of oils, having 
valuable properties, although not all equally fitted for illumination and lubrication. 

A second distillation of a portion of the product which came over in the later stages 
of the process (a portion distilled at about 650 F., and having a high colour), gave 
us a thin oil of density about . 750, of light yellow colour and faint odour. 

It is safe to add that, by the original distillation, about 50 per cent, of the crude oil 
is obtained in a state fit for use as an illuminator without further preparation than 
simple clarification by boiling a short time with water. 



DISTILLATION BY HIGH STEAM 

Bearing in mind that by aid of high steam, at an elevated temperature, many dis- 
tillations in the arts are affected which cannot be so well accomplished by dry heat, 
I thought to apply this method in case of the present research. Instances of this mode 
of distillation are in the new process for Stearine candles, and in the preparation of 
rosin oil. I accordingly arranged my retort in such a manner that I could admit a 
jet of high steam into the boiler, and almost at the bottom of the contained petroleum. 
I was, however, unable to command a jet of steam above 275 to 290 F., and although 
this produced abundant distillation, it did not effect a separation of the several products, 
and the fluid distilled had much the same appearance as the petroleum itself, thick and 
turbid. As this trial was made late in the investigation, I have been unable to give 
it a satisfactory issue, chiefly for want of steam of a proper temperature. But I sug- 
gest, for the consideration of the company, the propriety of availing themselves of the 
experience already existing on this subject, and particularly among those who are 
concerned in the distillation of rosin oil — a product having many analogies with 
petroleum in respect to its manufacture. 



USE OF THE NAPHTHA FOR ILLUMINATION 

Many fruitless experiments have been made in the course of this investigation 
which it is needless to recount. I will, therefore, only state those results which are 
of value. 

1. I have found that the only lamp in which this oil can be successfully burned is 
the camphene lamp, or one having a button to form the flame, and an external cone 
to direct the current of air, as is now usual in all lamps designed to burn either camphene, 
rosin oil, sylvic oil, or any other similar product. 

2. As the distilled products of petroleum are nearly or quite insoluble in alcohol, 
burning fluid (i. e., a solution of the oil in alcohol) cannot be manufactured from it. 

[272] 



APPENDIX, NUMBER I 

3. As a consequence, the oil cannot be burned in a hand lamp, since, with an unpro- 
tected wick, it smokes badly. Neither can it be burned in a Carcel's mechanical lamp, 
because a portion of the oil being more volatile than the rest, rises in vapour on the 
elevated wick required in that lamp, and so causes it to smoke. 

I have found all the products of distillation from the copper still capable of burning 
well in the camphene lamp, except the last third or fourth part (i.e., that portion 
which came off at 700 F. and rising, and which was thick with the crystals of paraffine). 
Freed from acidity by boiling on water, the oils of this distillation burned for twelve 
hours without injuriously coating the wick, and without smoke. The wick may be 
elevated considerably above the level required for camphene, without any danger 
of smoking, and the oil shows no signs of crusting the wick tubes with a coating of 
rosin, such as happens in the case of camphene, and occasions so much inconvenience. 
The light from the rectified naphtha is pure and white, without odour. The rate of 
consumption is less than half that of camphene, or rosin oil. The Imperial pint, of 
20 fluid ounces, was the one employed — a gallon contains 160 such ounces. A camphene 
lamp, with a wick one inch thick, consumed of rectified naphtha in one hour, if ounces 
of fluid. A Carcel's mechanical lamp of $-inch wick, consumed of best sperm oil, 
per hour, 2 ounces. A "Diamond Light" lamp, with "sylvic oil," and a wick i$-inch 
diameter, consumed, per hour, 4 ounces. 

I have submitted the lamp burning petroleum to the inspection of the most ex- 
perienced lampists who were accessible to me, and their testimony was, that the lamp 
burning this fluid gave as much light as any which they had seen, that the oil spent 
more economically, and the uniformity of the light was greater than in camphene, 
burning for twelve hours without a sensible diminution, and without smoke. I was, 
however, anxious to test the amount of light given, more accurately than could be 
done by a comparison of opinions. With your approbation I proceeded therefore to 
have constructed a photometer, or apparatus for the measurement of light, upon an 
improved plan. Messrs. Grunow, scientific artists of this city, undertook to construct 
this apparatus, and have done so to my entire satisfaction. This apparatus I shall 
describe elsewhere — its results only are interesting here. By its means I have brought 
the petroleum light into rigid comparison with the most important means of artificial 
illumination. Let us briefly recapitulate the results of these 



PHOTOMETRIC EXPERIMENTS 

The unit adopted for comparison of intensities of illumination is Judd's Patent 
Sixes Sperm Candle. 

The sperm oil used was from Edward Mott Robinson, of New Bedford — the best 
winter sperm remaining fluid at 32 F. The colza oil and Carcel's lamps were furnished 

[273] 



THE HISTORY OF THE STANDARD OIL COMPANY 

by Dardonville, lampist, Broadway, New York. The gas used was that of the New 
Haven Gas Light Co., made from best Newcastle coal, and of fair average quality. 

The distance between the standard candle, and the illuminator sought to be deter- 
mined, was constantly 150 inches — the photometer traversed the graduated bar in 
such a manner as to read, at any point where equality of illumination was produced, 
the ratio between the two lights. I quote only single examples of the average results, 
and with as little detail as possible, but I should state that the operation of the photom- 
eter was so satisfactory that we obtained constantly the same figures when operating 
in the same way, evening after evening, and the sensitiveness of the instrument was 
such that a difference of one-half inch in its position was immediately detected in the 
comparative illumination of the two equal discs of light in the dark chamber. This 
is, I believe, a degree of accuracy not before obtained by a photometer. 

Table of Illuminating Power of Various Artificial Lights Compared 
with Judd's Patent Candles as a Unit 

SOURCE OF LIGHT RATI ° T ° 

CANDLE 1 

Gas burning in Scotch fish-tail tips, 4 feet to the hour 1 : 5.4 

Gas burning in Scotch fish-tail tips, 6 feet to the hour 1 : 7.55 

Gas burning in Cornelius fish-tail tips, 6 feet to the hour 1 : 6.3 

Gas burning in English Argand burner, 10 feet to the hour 1:16 

Rock-oil, burning in i-inch wick camphene lamp, consuming if ounces of fluid 

to the hour 1 : 8.1 

Carcel's mechanical lamp, burning best sperm oil, 2 ounces of fluid to the hour, 

wick % of an inch , 1 : 7.5 

Carcel's mechanical lamp, burning best sperm oil, 2 ounces of colza oil to the 

hour, wick £ of an inch 1 : 7.5 

Camphene lamp (same size as rock-oil above) burning best camphene, 4 fluid 

ounces per hour 1 : 1 1 

" Diamond Light " by " sylvic oil," in 1 i-inch wick, 4 ounces per hour 1 : 8.1 

From this table it will be seen that the rock-oil lamp was somewhat superior in 
illuminating power to Carcel's lamp of the same size, burning the most costly of all 
oils. It was also equal to the "Diamond Light" from a lamp of one-half greater power, 
and consequently is superior to it in the same ratio in lamps of equal power. The 
camphene lamp appears to be about one-fifth superior to it, but, on the other hand, 
the rock-oil surpasses the camphene by more than one-half in economy of consumption 
(i.e., it does not consume one-half so much fluid by measure), and it burns more con- 
stantly. Compared with the sylvic oil and the sperm, the rock-oil gave on the ground 
glass diaphragm the whitest disc of illumination, while in turn the camphene was 
whiter than the rock-oil light. By the use of screens of different coloured glass, all 
inequalities of colour were compensated in the use of the photometer, so that the 
intensity of light could be more accurately compared. Compared with gas, the rock- 

[ 2 74 J 



APPENDIX, NUMBER I 

oil gave more light than any burner used except the costly Argand consuming ten 
feet of gas per hour. To compare the cost of these several fluids with each other, we 
know the price of the several articles, and this varies very much in different places. 
Thus, gas in New Haven costs $4 per 1,000 feet, and in New York #3.50 per 1,000, 
in Philadelphia #2.00 per 1,000, and in Boston about the same amount. 

Such sperm oil as was used costs #2.50 per gallon, the colza about $2, the sylvic oil 
50 cents, and the camphene 68 cents ; no price has been fixed upon for the rectified 
rock-oil. 

I cannot refrain from expressing my satisfaction at the results of these photometric 
experiments, since they have given the oil of your company a much higher value as 
an illuminator than I had dared to hope. 

USE OF THE ROCK-OIL AS A LUBRICATOR FOR MACHINERY 

A portion of the rectified oil was sent to Boston to be tested upon a trial apparatus 
there, but I regret to say that the results have not been communicated to me yet. As this 
oil does not gum or become acid or rancid by exposure, it possesses in that, as well as 
in its wonderful resistance to extreme cold, important qualities for a lubricator. 

CONCLUSION 

In conclusion, gentlemen, it appears to me that there is much ground for encourage- 
ment in the belief that your company have in their possession a raw material from 
which, by simple and not expensive process, they may manufacture very valuable 
products. 

It is worthy of note that my experiments prove that nearly the whole of the raw 
product may be manufactured without waste, and this solely by a well-directed process 
which is in practice one of the most simple of all chemical processes. 

There are suggestions of a practical nature, as to the economy of your manufacture, 
when you are ready to begin operations, which I shall be happy to make, should the 
company require it ; meanwhile, I remain, gentlemen, 

Your obedient servant, 

B. Silliman, Jr., 
Professor of Chemistry in Tale College. 
New Haven, April 16, 1855. 



[275] 



NUMBER 2 (See page 44) 



FIRST ACT OF INCORPORATION OF THE STANDARD OIL 

COMPANY 

KNOW ALL MEN BY THESE PRESENTS: That we, John D. Rockefeller, 
Henry M. Flagler, Samuel Andrews, and Stephen V. Harkness, of Cleveland, Cuyahoga 
County, Ohio, and William Rockefeller, of the City, County, and State of New York, 
have associated ourselves together under the provisions of the Act of the Legislature 
of the State of Ohio, entitled An Act to provide for the creation and regulation of 
incorporated companies in the State of Ohio, passed May I, 1852, and the Acts sup- 
plementary thereto passed April 8, 1856, and the Act to amend the last-named Act, 
passed February 14, 1861, and other laws of the State of Ohio applicable thereto, 
for the purpose of forming a body corporate for manufacturing petroleum and dealing 
in petroleum, and its products under the corporate name of THE STANDARD 
OIL COMPANY. 

And we do certify that the purpose for which said body corporate is formed is the 
manufacture of petroleum and to deal in petroleum and its products. 

That the capital stock necessary for said company, and the amount agreed on 
as composing the capital stock, is the sum of One Million Dollars. 

That the amount of each share of capital stock is One Hundred Dollars. 

That the name of the place where said manufacturing establishment shall be 
located for doing business is Cleveland City, Cuyahoga County, State of Ohio. 

That the name and style by which said manufacturing establishment shall be known 
is THE STANDARD OIL COMPANY. 

John D. Rockefeller, 
Henry M. Flagler, 
Samuel Andrews, 
Stephen V. Harkness, 
William Rockefeller. 

Cleveland, Ohio, January 10, 1870. 



[276] 



NUMBER 3 (See page 47) 



AFFIDAVIT OF JAMES H. DEVEREUX 



[In the case of the Standard Oil Company vs. William C. Scofield et al. in the Court 
of Common Pleas, Cuyahoga County, Ohio.] 

J. H. Devereux, being first duly sworn, says that he is forty-eight years of age, and 
is president of the New York, Pennsylvania and Ohio Railroad ; that in 1868 he 
became vice-president of the Lake Shore Railroad, and remained in that position 
as well as president and general manager till 1873. That he has heard read the state- 
ments of Robert Hanna and George O. Baslington, in their affidavits filed herein 
in respect to transportation of oil, and in regard thereto he has to say that his experience 
with the oil traffic began in 1868 when he went upon the Lake Shore Railroad as 
vice-president, succeeding Mr. Stone who retired from ill health; that the only written 
' memoranda connected with the business of the company with which he was furnished 
was a book in which it was stated — probably in Mr. Stone's handwriting — that the 
representatives of the various oil interests of Cleveland would agree to pay a rate of I 
cent, per gallon on crude oil moved from the regions to Cleveland; that in addition 
to the inevitable friction arising from the competition of these refiners of Cleveland — 
probably aggregating twenty-five in number, was the further difficulty of the patent 
right which the Pennsylvania Railroad claimed to the transportation of oil, and the 
peculiar differences made by them in the rates given to refiners at Titusville, Pittsburg, 
and other places all thoroughly in competition with the then very limited refining 
capacity of Cleveland; that he took up the subject as to whether the Lake Shore Rail- 
road could hope to compete for the transportation of oil, and the end of the matter 
was that the Jamestown and Franklin Railroad was extended from Franklin to Oil 
City, the then centre of the producing district, and a sharper contest than ever 
was produced, growing out of the opposition of the Pennsylvania Railroad in com- 
petition ; that such rates and arrangements were made by the Pennsylvania Railroad, 
that it was publicly proclaimed in the public print in Oil City, Titusville, and other 
places that Cleveland was to be wiped out as a refining centre as with a sponge, and 
without exception the oil refiners of Cleveland came to affiant as a representative of 
transportation, and with a single exception expressed their fears that they would have 
either to abandon their business here or move to Titusville or other points in the Oil 
Regions ; that the only exception to this decision was that offered by Rockefeller, Andrews 

I [ 277 ] 



THE HISTORY OF THE STANDARD OIL COMPANY 

and Flagler, who on its assurance that the Lake Shore Railroad could and would handle 
oil as cheaply as the Pennsylvania Company, proposed to stand their ground at Cleve- 
land and fight it out on that line. That later, about 1870, the first move was made to 
transport refined oil by rail regularly and throughout the entire year from Cleveland 
to New York. That prior to that time the export business from Cleveland was com- 
paratively limited and was confined to the summer months, most of that portion of 
the traffic refined at Cleveland in competition with Pittsburg, Titusville, and other 
places being shipped by lake and canal, and as affiant remembers at a rate of about 
one dollar per barrel, and with a certainty of its being reduced to ninety cents. That the 
rail rate was nominally two dollars on refined oil from Cleveland to New York. That 
Mr. Flagler, at this time representing Rockefeller, Andrews and Flagler, proposed to 
make regular monthly shipments by rail throughout the year provided a proper rate 
could be made for the business then offered, this rate to cover transportation of crude 
from the region to Cleveland, and when refined from Cleveland to New York. Rocke- 
feller, Andrews and Flagler being the only refiners here who proposed to compete for 
the export business or offered oil for the entire haul from the regions to Cleveland 
and thence to New York; that Mr. Flagler's proposition was to assure to the Lake 
Shore Railroad sixty carloads of refined oil per day* from Cleveland to New York 
at a rate of $1 .75 per barrel from the regions to New York, being thirty-five cents 
per barrel for crude from the regions to Cleveland and $1 .30 per barrel for refined 
from Cleveland to New York; and Rockefeller, Andrews and Flagler were to assume 
all risk and losses from fire or other accidents. That affiant took this proposition 
into consideration and made careful computation of the cost of this transportation 
to the railroad, which cost is the proper basis in fixing the rate to be charged; that 
affiant found that the then average time for a round trip from Cleveland to New York 
for a freight car was thirty days; to carry sixty cars per day would require 1,800 cars 
at an average cost of $500 each, making an investment of $900,000 necessary to do 
this business, as the ordinary freight business had to be done ; but affiant found that 
if sixty carloads could be assured with absolute regularity each and every day, the time 
for a round trip from Cleveland to New York and return could be reduced to ten days, 
by moving these cars in solid trains instead of mixing oil cars in other trains, as would 
be necessary when transported in small quantities and by moving the oil trains steadily 
without regard to other cars ; that by thus reducing the time to ten days for a round- 
trip, only six hundred cars would be necessary to do this business with an investment 
therefore of only $300,000. That the regularity of the traffic would insure promptness 
in the unloading and return of the cars ; that upon these considerations affiant con- 
cluded that Mr. Flagler's proposition offered to the railroad company a larger measure 
of profit than would or could ensue from any business to be carried under the old 

♦ This must have been in 1872, not 1870. Up to 1872 the capacity of the Standard was but 1,500 
barrels of crude a day. 

[278] 



APPENDIX, NUMBER III 

arrangements, and such proved to be pre-eminently the case; that the proposition of 

Mr. Flagler was therefore accepted, and in affiant's judgment this was the turning-point 

which secured to Cleveland a considerable portion of the export traffic. That this 

arrangement was at all times open to any and all parties who would secure or guarantee 

a like amount of traffic or an amount sufficient to be treated and handled in the same 

speedy and economical way, the charges for transportation being always necessarily 

based upon the actual cost of the service to the railroad, and whenever any shipper 

or shippers will unite to reduce the cost of transportation to the railroad, to refuse to 

give them the benefit of such reduction would be to the detriment of the public, the 

consumers, who in the end pay the transportation charges. Affiant says that this 

legitimate and necessary advantage of the large shipper over the smaller he explained 

to Mr. Hanna and Mr. Baslington, and they recognised its propriety, and affiant offered 

them the same terms if by themselves or with others they would assure him like 

quantities with like regularity, thus securing like speed and economy in transportation. 

And further affiant saith not. 

J. H. Devereux. 

Subscribed in my presence and sworn to before me this thirteenth day of November, 

1880. 

J. C. Cannon, 

Notary Public in and for Said County. 



[279] 



NUMBER 4 (See page 55) 

TESTIMONY OF HENRY M. FLAGLER ON THE SOUTH 
IMPROVEMENT COMPANY 

[Proceedings in Relation to Trusts, House of Representatives, 1888. Report Num- 
ber 31 12, pages 289-290.] 

A. . . . Neither of the Messrs. Rockefeller, Colonel Payne, nor myself, nor any 
one connected with the Standard Oil Company, ever had any confidence in or regard 
for the scheme known as the South Improvement Company. We did not believe in 
it, but the view presented by other gentlemen was pressed upon us to such an extent 
that we acquiesced in it to the extent of subscribing our names to a certain amount 
of the stock, which was never paid for. The company never did a dollar's worth of 
business, and never had any existence other than its corporative existence, which it 
obtained through its charter. Through its president it negotiated certain railroad 
contracts, which, as I remember now, were signed by the company and by the officers 
of the railroad. Those contracts were held in escrow a few weeks and were destroyed 
or cancelled by mutual consent. 

Q. Who presented these views to you gentlemen ? Who was the person that had 
charge of this South Improvement Company's scheme ? 

A. I think Mr. Warden and the Messrs. Logan were the great leaders in the South 
Improvement Company policy. 



[ 280 ] 



NUMBER 5 (See page 62) 

CONTRACT BETWEEN THE SOUTH IMPROVEMENT COMPANY 
AND THE PENNSYLVANIA RAILROAD COMPANY, DATED 
JANUARY 18, 1872 

[Proceedings in Relation to Trusts, House of Representatives, 1888. Report Num- 
ber 31 12, pages 357-361.] 

Agreement made and entered into this eighteenth day of January, in the 
year eighteen hundred and seventy-two, by and between the South Improvement 
Company, a corporation organised and existing under the laws of the State of Penn- 
sylvania, party hereto of the first part, and the Pennsylvania Railroad Company, 
on its own behalf and on behalf of all other railroad companies, whose roads are con- 
trolled, owned, or leased by it, or with which it has sufficient running arrangements, 
which other roads are herein described as the connections of the said Pennsylvania 
Railroad Company, party hereto of the second part. 

WITNESSETH: 

Whereas, the party hereto of the first part has been organized for the purpose, among 
other things, of increasing, facilitating, and developing the trade in and the conveyance 
and transportation of petroleum and its products, and for that purpose proposes, 
among other things, to expend large sums of money in the purchase, erection, and 
construction of, and maintaining and conducting works for storage, distillation, and 
refining, warehousing and transportation, and in various other ways, upon the in- 
ducement, among other things, of this contract. 

And Whereas, the magnitude and extent of the business and operations proposed 
to be carried on by the party hereto of the first part will greatly promote the interest 
of the party hereto of the second part, and make it desirable for it, by fixing certain 
rates of freight, drawbacks, and rebates, and by the other provisions of this agreement, 
to encourage the outlay proposed by the party hereto of the first part, and to facilitate 
and increase the transportation to be received from it. 

And Whereas ', it has been agreed by and between the party hereto of the second 
part, for itself and its connections, the Erie Railroad Company, for itself and its con- 
nections, and the New York Central Railroad Company, for itself and its connections, 
that the business of transporting, by railroad, crude petroleum and its products, 

[281] 



THE HISTORY OF THE STANDARD OIL COMPANY 

toward the Atlantic coast, from the points of production and refining, on their lines of 
road shall be allotted by the party hereto of the first part, to the said three companies, 
in the proposition of forty-five (45) per cent, of the whole to the Pennsylvania Railroad 
Company, for itself and its connections, including the Philadelphia and Erie Railway, 
the Northern Central Railway, the Alleghany Valley Railroad, Camden and Amboy 
Railway, the Pennsylvania Company, and all other railroads which are, or may be, 
controlled, owned, and leased by it, or with which it has, or may have, sufficient running 
arrangements; twenty-seven and a half (27^) per cent, of the whole to the Erie Railway 
Company, for itself and its connections, and twenty-seven and a half (27^) per cent, 
of the whole to the New York Central Railroad Company for itself and its connections, 
and that the transportation beyond Cleveland and Pittsburg over the railroads of 
the said companies and their connections, in other directions than toward the Atlantic 
coast, west from said points of production and refining, shall be allotted by the party 
hereto of the first part, in the proportion of one-third thereof, to the party hereto of the 
second part, for itself and its western connections, and the remainder to other railroads. 
Now, therefore, this agreement witnesseth : That the parties hereto for themselves 
and their successors, in consideration of the promises, of the mutual execution hereof, 
and of the mutual advantages hereby conferred, have covenanted and agreed, and 
hereby do covenant and agree each with the other, as follows: 

ARTICLE FIRST 

The party hereto of the first part covenants and agrees: 

1. To furnish to the party hereto of the second part for transportation, such a 
proportion of the crude petroleum and its products, owned or controlled by the party 
hereto of the first part, as shall give to the party hereto of the second part forty-five (45) 
per cent, of all the crude petroleum and its products, sent from the points of production 
and refining toward the Atlantic coast, by the said Pennsylvania, the Erie, and the 
New York Central railroads and their connections, and thirty-three and one-third 
(33i) P er cent ' °f tnat which is sent west of Pittsburg and Cleveland by those railroads 
and their connections. 

2. To provide suitable tankage at the points where petroleum is produced, on the 
railroads of the party hereto of the second part and its connections in which to receive 
crude petroleum preparatory to shipment, with the necessary pipes, pumps, racks, 
and other appliances for its convenient transfer in bulk into railroad cars. 

3. To deliver to the railroads of the party hereto of the second part, and its con- 
nections, at the places of shipment, and to receive from them, at the places of des- 
tination, all crude petroleum and its products transported over their roads for the party 
of the first part. 

4. To provide at the places of destination on the seaboard, necessary and suitable 

[282] 



APPENDIX, NUMBER V 

yards, wharves, warehouses, sheds, tanks, pipes, pumps, and motive power, for the 
reception of petroleum and its products, and loading vessels therewith. 

5. To provide, maintain, and operate the works necessary to refine crude petroleum 
upon the largest scale practicable, and with such skill, and on such a system of organi- 
sation and division of labour, as will secure both efficiency and economy; and for that 
purpose and for the purpose of developing and increasing the petroleum trade of the 
country, to provide and maintain all suitable and necessary means and facilities. 

6. To keep records of the transportation over the railroads of the party hereto of 
the second part, and its connections, and so far as it can obtain the same, over the 
Erie and the New York Central railroads and their connections, of all petroleum 
and its products, showing the number of barrels of forty-five gallons each in bulk, 
and the number of barrels of forty-seven gallons each in barrels, carried by each road 
with the points of receiving and delivery, and the amount of freight received by each 
road for such transportation, which records shall at all reasonable times be open to 
the inspection of the duly constituted representatives of the party hereto of the second 
part. 

Monthly abstracts of all such records shall be regularly sent to the party of the 
second part. 

7. To pay the party of the second part weekly for all transportation over its roads 
and its connections, of petroleum and its products, such gross rates and half-rates 
of freight as are hereinafter specified, less the rebates and drawbacks hereinafter 
provided to be retained by the party hereto of the first part for its own use. 

ARTICLE SECOND 

The party hereto of the second part covenants and agrees: 

1. That the party hereto of the second part will pay and allow to the party hereto 
of the first part, for its own use, in all petroleum and its products, transported over 
the railroads of the party hereto of the second part and its connections, for the party 
hereto of the first part, rebates, and on all transported for others, drawbacks, at the rates 
hereinafter provided, except in the case specified in Article Third. 

2. To deliver to the party hereto of the first part all petroleum and its products 
in packages, transportation over the railroads, of the party hereto of the second part, 
and its connections, by whomsoever shipped, and consigned to the party of the first 
part, at the warehouses of the party of the first part, at the seaboard, and inland, 
at the depots of the party of the second part, at the places of destination, and to deliver 
all petroleum and its products, in bulk, owned by or consigned to the said party of 
the first part, at any point required on the line of the railroads, of the party of the 
second part and its connections. 

3. To transport and deliver petroleum and its products over the railroads of the 

[283] 



THE HISTORY OF THE STANDARD OIL COMPANY 

party of the second part and its connections, at gross rates, which shall at no time 
exceed the following, without the consent of both parties hereto. 

From any point on the Oil Creek and Allegheny River Railroad to Oil City, Union, 
Corry or Irvineton, which are herein designated as common points y on each barrel 
of forty-five gallons in bulk, and on each barrel of forty-seven gallons in barrels, thirty 
cents. 

ON CRUDE PETROLEUM 

From any common point to Cleveland, for each barrel of 45 gallons £0.80 

" Pittsburg, " " " " " 80 

" New York, " " " " " 2.56 

" Philadelphia, " " " " " 2.41 

" Baltimore, " " " " " 2.41 

" Boston, " " u " " 2.71 

All other points, except those on the Oil Creek and Allegheny River Railway, to 
the places of destination last named, the same rates as from the common points. 

ON REFINED OIL, BENZINE, AND OTHER PRODUCTS OF THE MANUFACTURE OF PETRO- 
LEUM 

From Pittsburg to New York, for each barrel $2 . 00 

" Philadelphia, " " 1 .85 

" Baltimore, " " 1 .85 

From Cleveland to Boston, " 2.15 

" " " New York, " " 2 .00 

" Philadelphia, " " 1 .85 

" Baltimore, " " 1.85 

From any common point to New York, for each barrel 2 . 92 

" " " " "Philadelphia," " 2.77 

" " " " " Baltimore, " " 2.77 

" " " " " Boston, " " 3-07 

From and to all points intermediate between the points aforesaid, such reasonable 
rates as the party of the second part shall from time to time establish, on both crude 
and refined. 

From Pittsburg, Cleveland, and other points, to places west of Pittsburg and Cleve- 
land, such reasonable rates as the party of the second part may deem it expedient 
from time to time to establish. 

4. To pay and allow to the party hereto cf the first part, on all petroleum and its 
products, transportation for it over the railroads of the party of the second part and 
its connections, the following rebates, and on all transported for other parties, draw- 
backs of like amounts, as the rebates from the gross rates, the same to be deducted 
and retained by the party hereto of the first part, for its own use from the amounts 
of freights, payable to the party of the second part. 

[284] 



' 



APPENDIX, NUMBER V 

ON THE TRANSPORTATION OF CRUDE PETROLEUM 

rom the gross rate from any common point to Cleveland, a rebate per barrel of.lo.40 

" " Pittsburg, " " " " .40 

" " New York, " " " " 1.06 

" " Philadelphia, " " " " 1.06 

" " Baltimore, " " " " 1.06 

" " Boston, " " « « 1.06 



From the gross rate from all other points, and the six places of destination last named 
rebates the same as on the rates from the common points. 

ON THE TRANSPORTATION OF REFINED OIL, BENZINE, AND OTHER PRODUCTS OF 







THE MANUFACTURE OF PETROLEUM 


From the gross rates 


from Pittsburg to New York, a rebate per barrel of #0.50 


« t 


t tt tt 


"Philadelphia, " " " " 50 


u f 


t tt tt 


" Baltimore, " " " " 50 


tt t 


t tt it 


" Cleveland to Boston, " " " " 50 


*t t 


t tt tt 


"New York, " " M " 50 


tt f 


t it tt 


"Philadelphia, " " " " 50 


u t 


t if it 


" Baltimore, " " " " 50 


tt t 


t tt ft 


" any common point to New York, a rebate per barrel of . 1 . 32 


ft I 


t ft tt 


" " " " "Philadelphia, " " " ".1.32 


tt f 


{ tt tt 


" " " " "Baltimore, " " " ".1.32 


ft t 


f ft ft 


" " " " "Boston, " " " ".1.32 



From the gross rates to and from all points, intermediate between the above points, 
a rebate or drawback of one-third of the gross rate, shall be paid. 

From the gross rates from Pittsburg, Cleveland, and other points, to places west 
of the meridians of Pittsburg and Cleveland, a rebate or drawback of one-third of 
the gross rate shall be paid. 

5. To charge to all other parties (excepting such as are referred to in Article 3d) 
for the transportation of petroleum and its products, rates which shall not be less 
than the gross rates above specified, and should at any time any less rate be charged, 
directly or indirectly, either by way of rebate, commission, allowances, or upon any 
pretext whatsoever, the same reduction per barrel shall be made to the party hereto 
of the first part, from the net rates provided for them, on all transportation for them 
during the period for which such reduction shall be made to others. 

6. To permit the party hereto of the first part, if, in its judgment, the currents of 
trade should so require, temporarily to increase or diminish the proportion, as herein 
provided to the party hereto of the second part, for itself and its connections, as the 
whole business of transporting petroleum and its products, as between the party hereto 
of the second part, the Erie Railway Company and the New York Central Railroad 
Company. The party of the second part in such case, to receive from the party hereto 

[285] 



THE HISTORY OF THE STANDARD OIL COMPANY 

of the first part, in full payment or indemnity, for the excess or deficiency, one-half 
the net schedule rates on such excess or deficiency; the other half to be paid pro rata 
to the said other companies, whose apportioned quantity of transportation shall thus 
be varied; but such diversion of business shall not, at any time, exceed one week, nor 
be repeated without an interval of at least sixty days, unless with the consent of the 
party hereto of the second part. Also, that whenever from time to time, as aforesaid, 
a temporary diversion of a part of the apportioned transportation of the party of the 
second part, to the other railroads aforesaid, or to either of them, shall become necessary, 
cars of the party of the second part may be loaded by the party of the first part, and 
sent away over such other railroads, or either of them, but the cars so sent away shall 
be returned without unnecessary delay, and in as good order as when taken to the 
railroads of the party of the second part, and mileage at the usual rates paid for their 
use while absent. 

7. To furnish with as much regularity as possible, at all times, good and sufficient 
cars, and other means suitable and necessary for the safe and prompt transportation 
of all crude petroleum and its products, either in bulk or in barrels, which the party 
hereto of the first part shall desire to send from one point to another (and which 
shall be supplied with as much regularity as possible), on or over the railroads of the 
party of the second part and its connections. 

8. To make manifests or way-bills of all petroleum or its products, transported 
over any portion of the railroads of the party of the second part or its connections, 
which manifests shall state the name of the consignor, the place of shipment, the kind 
and actual quantity of the article shipped, the name of the consignee, and the place 
of destination, with the rate and gross amount of freight and charges, and to send 
daily to the principal office of the party of the first part, duplicates of all such mani- 
fests or way-bills. 

ARTICLE THIRD 

And it is hereby further covenanted and agreed by and between the parties hereto, 
that the rebates hereinbefore provided for the party hereto of the first part, may be 
made to any other party who shall furnish an equal amount of transportation, and 
who shall possess and use works, means, and facilities for carrying on and promoting 
the petroleum trade equal to those possessed and used by the party hereto of the first 
part. 

ARTICLE FOURTH 

And it is hereby further covenanted and agreed by and between the parties hereto, 
that the party hereto of the second part shall at all times co-operate, as far as it legally 
may, with the party hereto of the first part, to maintain the business of the party hereto 
of the first part, against loss or injury by competition, to the end that the party hereto 
of the first part may keep up a remunerative, and so a full and regular business, and 

[286] 



APPENDIX, NUMBER V 

to that end shall lower or raise the gross rates of transportation over its railroads 
and connections, as far as it legally may, for such times, and to such extent as may 
be necessary to overcome such competition. The rebates and drawbacks to the party 
of the first part to be varied pari passu with the gross rates. 

ARTICLE FIFTH 

It is hereby mutually agreed by and between the parties hereto that for the purpose 
of meeting such exigencies as may from time to time require change of the rates of 
transportation herein provided, each party, on ten days' written notice from the other, 
shall appoint a person on behalf of such party, and the two persons thus appointed, 
shall have power to change and adjust the rates, which shall go into effect on being 
approved by the said parties hereto. 

ARTICLE SIXTH 

It is further mutually agreed by and between the parties hereto that the gross rates 
of freight to the party hereto of the first part shall at all times be kept as near to the 
net rates as is consistent with the interests of the party hereto of the first part, and that 
whenever in the judgment of the party hereto of the first part it is expedient to lower 
the rebate below the rate above specified, it may do so, and from time to time raise 
the same again, not, however, above the rate hereinbefore specified. The party hereto 
of the first part, from time to time shall notify the party of the second part in writing 
of the change required, whereupon the party hereto of the second part shall forthwith 
make a corresponding change of such gross rates. 

ARTICLE SEVENTH 

It is further mutually agreed by and between the parties hereto, that this agreement 
shall continue and remain in force for the period of not less than five years, and shall 
not then, nor thereafter terminate, until one of the parties shall have given twelve 
months' written notice to terminate it. 

ARTICLE EIGHTH 

It is further mutually agreed by and between the parties hereto, that if any doubt, 
question, difference, cause, or suit shall at any time or times, hereafter, arise or happen 
between the said parties to these presents, touching the construction of these presents, 
or any clause, matter, or thing herein contained, or any other matters, cause, or thing 
whatsoever, in any wise relating to or concerning this agreement, and such doubt, 
question, difference, or dispute, shall not be fully settled by the parties to these presents 
within one calendar month after the same shall arise, then, in every such case, upon 

[287] 



THE HISTORY OF THE STANDARD OIL COMPANY 

the request in writing of either of the said parties hereto, specifying such doubt, ques- 
tion, difference, or dispute, it shall be committed and referred to the hearing and 
arbitration of three disinterested persons; one of them to be chosen by the party of 
the first part, another of them to be chosen by the party of the second part, and each 
party on ten days' notice in writing from the other, shall make such choice, and appoint 
a disinterested person in behalf of such party, but, if either party on such notice 
shall within such ten days fail to make an appointment, the person appointed by the 
other party shall choose the second disinterested person, and the third disinterested 
person shall be chosen within one calendar month next after such request; and the 
award, order, or determination of the said three persons, to be chosen as aforesaid, or 
any two of them, shall be binding and conclusive on the parties hereto, and shall 
be performed and kept by them, without any further suit or trouble whatsoever; 
provided such award, order, or determination, be made in writing, under the hands 
of the said three persons, or of any two of them, within the space of sixty days after 
all the persons shall be so selected, as aforesaid. And for the further and better en- 
forcing the performance of the award, so to be made, as aforesaid, the reference or 
submission for or in respect of the same, may, at the option of any of the parties to 
these presents, from time to time be made as a matter of course, a rule of court in 
any court of record. 

In witness whereof, the said South Improvement Company and Pennsylvania 
Railroad Company have caused their respective corporate seals to be hereto affixed, 
and these presents to be subscribed by their respective presidents, the day and year 
first above written. 

South Improvement Company. 
[SEAL] By P. H. Watson, 

President. 

Pennsylvania Railroad Company. 
[SEAL] By J. Edgar Thompson, 

President. 
Attest: Joseph Lesley, Secretary. 



[288] 



NUMBER 6 (See page 63) 

STANDARD OIL COMPANY'S APPLICATION FOR INCREASE OF 
CAPITAL STOCK TO £2,500,000 IN 1872 

To the Secretary of the State of Ohio: 

The undersigned, being a majority of the Board of Directors of THE 
STANDARD OIL COMPANY OF CLEVELAND, OHIO, do hereby certify 
that on the first day of January, a.d. 1872, at the annual meeting of the stockholders 
of said company held at its office in Cleveland, Cuyahoga County, Ohio, by a vote 
then and there taken, all the stockholders of said company being present and voting 
therefor, it was resolved and agreed by each and all of them, that the capital stock 
of said company be increased the sum of One Million Five Hundred Thousand 
Dollars, thereby making the capital stock of said company Two Millions Five 
Hundred Thousand Dollars, which action of the stockholders was as follows, to wit: 

Resolved, and it is hereby agreed by each and all of us, that the capital stock of 
this company, namely, The Standard Oil Company of Cleveland, Ohio, be increased 
to the sum of Two Millions Five Hundred Thousand Dollars, and it is also agreed, 
and the proper officers of the company are hereby instructed to take the requisite 
steps to so increase said capital stock. 

John D. Rockefeller, O. B. Jennings, B. Brewster, William Rockefeller, 
S. V. Harkness, H. M. Flagler, T. P. Handy, S. Andrews, A. Stone, Jr., 
S. Witt, Stockholders. 

Cleveland, O., January 1st, A.D. 1 872. 

And afterward said meeting was adjourned. Henry M. Flagler, Secretary. 

And we further certify that the whole amount of such increase of capital stock 
has been paid to said company, in money, that no note, bill, bond, or other security 
has been taken for the same, or any part thereof, and that the credit of the company 
has not been used directly or indirectly to raise funds to pay the same or any part 
thereof. 

IN WITNESS WHEREOF, We hereunto set our names at Cleveland, Ohio, 
this ninth day of February, a.d. 1872. 

John D. Rockefeller, Henry M. Flagler, Samuel Andrews, Stephen V. 
Harkness, Directors. 

[289] 



NUMBER 7 (Sec page 67) 



AFFIDAVITS OF GEORGE O. BASLINGTON 

[In the case of the Standard Oil Company vs. William C. Scofield, et al. f in the 
Court of Common Pleas, Cuyahoga County, Ohio.] 

In the spring of 1869, they (Hanna, Baslington & Company) began the construc- 
tion of refining works just above the Atlantic depot on the west side of the Cleveland 
and Columbus Railroad track, and invested in the construction of the works about 
£67,000, which works were completed so as to commence the refining business about 
the first of June, 1869, and from that time up to about the first of July, 1870, the works 
had netted a profit of £40,000 over all expenses of running said works, being about 
60 per cent, on the capital invested per annum, and from that time on up to the first 
of April, 1872, said firm cleared £21,000, being about 30 per cent, per annum on the 
investment from the time that said firm commenced business. 

Some time in February, 1872, the firm received a message from the Standard Oil 
Company requesting said firm to have an interview as to the disposal of the refining 
works of said firm; that they were indisposed to enter into any arrangement for the 
disposition of said works because the investment of capital in said works had proved 
abundantly profitable to their satisfaction and they had no disposition whatever to 
part with the works; but upon investigation they were somewhat surprised to find 
that the Standard Oil Company had already obtained the substantial control of the 
different refineries in the City of Cleveland; that it had obtained such rates of trans- 
portation of crude and refined oil from the different railroads that it was impossible 
for them to compete with it, and upon an interview which was had by Mr. Hanna 
and affiant with Mr. Rockefeller who was at the time president of the Standard Oil 
Company. Mr. Flagler, the secretary of the company, being present, Mr. Rockefeller 
in substance declared or said that the Standard Oil Company had such control of 
the refining business already in the City of Cleveland that he thought said firm of 
Hanna, Baslington & Company could not make any money; that there was no use 
for them to attempt to do business in competition with the Standard Oil Company. 

Affiant further says that after having had an interview both with Mr. Watson, 
who was the president of a company called "The South Improvement Company," 
and Mr. Devereux, who was the general manager of the Lake Shore Road, he became 

[290] 



APPENDIX, NUMBER VII 

satisfied that no arrangement whatever could be effected through which transportation 
could at least be obtained on the Lake Shore Road that would enable their firm to 
compete with the Standard Oil Company, the works of said Hanna, Baslington & 
Company, being so situated that they could only obtain their crude oil through the 
line of the Lake Shore Road. And finding that the Standard Oil Company had such 
special rates of transportation that unless the firm of Hanna, Baslington & Company 
were enabled to bring as much oil as the Standard Oil Company, that it was impossible 
for said firm of Hanna, Baslington & Company to obtain a fair competing rate with 
the Standard Oil Company. They at least came to the conclusion that it was better 
for them to take what they could get from the Standard Oil Company and let their 
works go. 

And affiant further says that under these circumstances they sold their works to 
the Standard Oil Company, which were on the day of the sale worth at least $100,000, 
for $45,000 because that was all they could obtain from them, and works too which 
in cash cost them not less than $76,000, and which with a fair competition would have 
paid them an income of not less than 30 per cent, per annum on the investment. 

Affiant further says that at the interviews which he had with Mr. Rockefeller, Mr. 
Rockefeller told him that the Standard Oil Company already had control of all the 
large refineries in the City of Cleveland and there was no use for them to undertake 
to compete against the Standard Oil Company, for it would only ultimate in their 
being wiped out, or language to that effect. — (November 1, 1880.) 

George O. Baslington being duly sworn (November 12, 1880) says: That the firm 
of Hanna, Baslington & Company, the first year they were in business, made profit 
amounting to a little less than $40,000 and from the end of the first year up to the 
time of the sale to the Standard Oil Company they made no profit at all. At the time 
of the sale the firm reserved the privilege of running the works to close up and run 
them up to about April 1, 1872, and during that time they made profit to the amount 
of about $21,000. At the time my former affidavit was drawn by Mr. Tyler, I stated 
these facts to him. 

In the sale of the works to the Standard Oil Company we were given the option 
to take cash or to take stock in the Standard Oil Company at par. We decided to 
and did take cash, and one reason that influenced us to take cash was that we were 
fearful that refining oil at Cleveland might not be successful, and if so, the cash was 
better than the stock, and affiant wanted the cash to enable him to embark in other 
pursuits. 



[29I ] 



NUMBER 8 (See page 72) 

ORGANISATION OF THE PETROLEUM PRODUCERS' UNION OF 

1872 

[From "A History of the Rise and Fall of the South Improvement Company," 
pages 8-10.] 

1. The territory forming the Pennsylvania petroleum field shall be divided into 
sixteen districts. . . . 

2. The producers in each district shall meet at some convenient place and choose 
one or more (not to exceed five) men, from their own number, through whose hands 
they shall pledge themselves to sell all their crude oil. 

3. It shall be the duty of these committeemen to sell the crude oil coming into their 
hands: First, to the local refiners; second, to the agents of the refiners located in distant 
cities, as may be designated by the executive committee; and third, to such shippers, 
dealers, and exporters as may be named by the executive committee, and it shall be 
the further duty of said local committeemen to keep the executive committee fully 
posted as to what is being done in their respective districts with reference to the sale 
and removal of all crude oil. 

4. There shall be an executive committee composed of members of the Petroleum 
Producers' Union, to consist of one from each of the sixteen districts, to be chosen by 
the local committee, whose duty it shall be to meet from time to time, and take all 
necessary measures to fully carry out this plan in all its details. 

5. That for the purpose of paying the expenses of this committee, one cent a barrel 
on all the crude oil shall be levied, collected, and paid over by the local committee- 
men to the executive committee, of which the executive committee shall keep an account 
to be rendered to the producers at a future meeting. 

6. It shall be the especial duty of the executive committee to take such measures 
as they may find necessary to secure uniform mileage rates of freights on all oil 
and merchandise of every kind, to and from the Oil Region, and employ all lawful | 
measures for the abolition of the railway system of rebates or drawbacks. 

PLEDGE 

"I do hereby agree to sell all my production of oil through, or with the consent 
of, the committee of the Petroleum Producers' Union." 

[292] 



APPENDIX, NUMBER VIII 

First. — That an organisation shall be immediately formed for the exclusive purpose 
of advancing money to producers upon their depositing proper Tank or Pipe Company 
receipts therefor with the organisation or its agency. 

Second. — That the name of the organisation shall be the "Producers' Protective 
Association." 

Third. — That its capital shall be one million dollars, with power in the directors 
to increase it to such an amount as in their judgment shall be necessary to accomplish 
the objects of the organisation. 

Fourth. — That its headquarters shall be in Oil City, and its co-operative agencies 
shall be located at all principal producing points. 

Fifth. — That its stock shall be divided into shares of $100 each, which stock 
shall be transferable only upon the books of the company at its headquarters, with 
the consent of the board of directors. 

Sixth. — That the chairman of the general committee be requested to appoint one 
person in each of the sixteen producing districts, who shall open books to receive, 
and every producer, manufacturer, or other party, directly or indirectly interested 
in our home industries be invited to subscribe to the capital stock of this organisation 
not exceeding fifty shares, or such part thereof as he shall elect, and no person shall, 
at any time hold more than said number of shares. 

Seventh. — That when the sum of one million dollars shall have been subscribed 
and ten per cent, thereof paid to five trustees to be appointed by the chairman of the 
general committee, the said chairman shall give notice of an election of officers, who 
shall be elected by the votes of the subscribers, each share being entitled to a vote. 

Eighth. — That said officers shall consist of a president, vice-president, and such 
a number of directors as shall give each district a fair presentation. 

Ninth. — That the board of directors shall appoint some bank or banker in each 
district its co-operative agency; or in the absence of a bank or bankers such agencies 
be established as shall be most convenient for the producer, which bank or agency 
shall, as necessity requires, by draft or otherwise, obtain its funds from the headquarters 
of the company, and be held strictly accountable therefor. 

Tenth. — That every producer shall be entitled to go to his most convenient agency, 
and deposit his certificate or receipt for oil, which shall be passed to his credit, and 
he shall receive such an advance thereof as the board of directors in their discretion 
shall deem prudent to make. 

Eleventh. — That the association shall from time to time sell the oil belonging to it, 
or held as security for advances overdue in such quantities and at such prices as legiti- 
mate demand will justify said prices to be daily telegraphed from headquarters to the 
several agencies. 

Twelfth. — That every producer depositing oil in the hands of the association on 
which no advance is made, may, if he so elect, have his oil held until such time as 

[ 293 ] 



THE HISTORY OF THE STANDARD OIL COMPANY 

he shall direct its sale, and that the appropriation of oils sold from day to day shall 
be as follows: First, all oils ordered sold by its owner, and the balance pro rata on I 
oils on which advances have been made and shall then be overdue. 

Thirteenth. — The association shall charge a reasonable rate of interest on all ad- 
vances made, such interest to be used in defraying the expenses of the association ! 
and the surplus, if any, shall be declared as dividends upon the full paid stock. That 
any surplus stock remaining in the hands of the association shall be the property of j 
the association until taken and paid for by some party entitled thereto under the 
foregoing provisions, but always at par. 

Fourteenth. — When the producers of each district shall have appointed their com- 
mittees, as provided in the second section of the Producers' Union, and have elected 
their chairman, he is requested to send to the chairman of the general committee 
the names thereof. 

Fifteenth. — And it shall be the duty of the person appointed by the general com- 
mittee, as provided in section five, to use due diligence in the circulation thereof, for 
subscriptions, and within one week from the receipt thereof, he shall collect the ten 
per cent, of each subscription, as provided by section seventh, and report the same 
to the chairman of the general committee, together with a list of the subscribers and 
the amount subscribed. 



[294] 



NUMBER 9 (See page 78) 

CHARTER OF THE SOUTH IMPROVEMENT COMPANY 

[From The Laws of Pennsylvania for 1872.] 

An Act to incorporate the South Improvement Company: 

Section I. Be it enacted by the Senate and House of Representatives of the Common- 
wealth of Pennsylvania in General Assembly met y and it is hereby enacted by the authority 
of the same. That S. S. Moon, R. D. Barcley, John A. Fowler, or a majority of them, 
their associates, successors, and assigns, be and they are hereby authorised and em- 
powered to form and be a body corporate, to be known as the South Improvement 
Company, which shall be and is hereby vested with all the powers, privileges, duties, 
and obligations conferred upon the act to incorporate the Pennsylvania Company 
by the Act of the Legislature of Pennsylvania, approved the seventh day of April, 
a.d. one thousand eight hundred and seventy, and the supplements thereto. 

Sec. 2. That the stockholders of said company, by and with the consent of the 
holders of not less than two-thirds of the shares of stock, be and they are hereby 
authorised to change the name and title of the said company and designate the location 
of its general office, which changes shall be valid after the filing of a certificate in the 
office of the secretary of the Commonwealth, signed by the president, and attested by 
the seal of the said company. 

Approved the sixth day of May, 1871. 

The Act incorporating the Pennsylvania Company, referred to above, is the one 
that details the powers conferred on the incorporators. 

An Act to incorporate the Pennsylvania Company: 

Section i. Be it enacted by the Senate and House of Representatives of the Common- 
wealth of Pennsylvania in General Assembly met y and it is hereby enacted by the author- 
ity of the same, That Andrew Howard, J. S. Swartz, G. B. Edwards, J. D. Welsto, 
and J. P. Malin, their associates, successors, and assigns, or a majority of them, be 
and they are hereby authorised to form and be a body corporate, to be known as 
the Pennsylvania Company, and by that name, style, and title shall have perpetual 
succession, and all the privileges, franchises and immunities incident to a corporation; 
may sue and be sued, implead and be impleaded, complain and defend in all courts 
of law and equity, of record and otherwise; may purchase, receive, hold, and enjoy, 
to them, their successors, and assigns, all such lands, tenements, leasehold estates 
and hereditaments, goods and chattels, securities and estates, real, personal and mixed, 
of what kind and quality soever, as may be necessary to erect depots, engine houses, 

[295] 



THE HISTORY OF THE STANDARD OIL COMPANY 

tracks, shops, and other purposes of the said corporation, as hereafter defined by 
the second section of this act, and the same from time to time may sell, convey, mort- 
gage, encumber, charge, pledge, grant, lease, sub-lease, alien, and dispose of, and 
also make and have a common seal, and the same to alter and renew at pleasure, and 
ordain, establish, and put in execution such by-laws or ordinances, rules, and regula- 
tions as may be necessary or convenient for the government of the said corporation, not 
being contrary to the constitution and laws of this commonwealth, and generally 
may do all and singular the matters and things which to them shall appertain to do 
for the well-being of the said corporation, and the management and ordering of the 
affairs and business of the same: 

Provided, That nothing herein contained shall be so construed as to give to the said 
corporation any banking privileges or franchises, or the privilege of issuing their 
obligations as money. 

Sec. 2. That the corporation hereby created shall have power to contract with 
any person or persons, firms, corporations or any other party, howsoever formed, 
existing or that may hereafter exist, in any way that said parties or any of them may 
have authority to do, to build, construct, maintain or manage any work or works, public 
or private, which may tend or be designed to improve, increase, facilitate, or develop 
trade, travel, or the transportation and conveyance of freight, live stock, passengers, 
and any other traffic, by land or water, from or to any part of the United States or the 
territories thereof; and the said company shall also have power and authority to 
supply or furnish all needful material, labour, implements, instruments, and fixtures 
of any and every kind whatsoever, on such terms and conditions as may be agreed 
upon between the parties respectively; and also to purchase, erect, construct, maintain, 
or conduct, in its own name and for its own benefit, or otherwise, any such work, public 
or private, as they may by law be authorised to do (including also herein lines for 
telegraphic communication), and to aid, co-operate, and unite with any other company, 
person or firm in so doing. 

Sec. 3. The company hereby created shall also have the power to make purchases 
and sales of or investments in the bonds and securities of other companies, and to 
make advances of money and of credit to other companies, and to aid in like manner 
contractors and manufacturers; and to receive and hold, on deposit or as collateral, 
or otherwise, any estate or property, real or personal, including the notes, obligations, 
and accounts of individuals and companies, and the same to purchase, collect, adjust, 
and settle, and also to pledge, sell, and dispose thereof, on such terms as may be agreed 
on between them and the parties contracting with them; and also to indorse and guar- 
antee the payment of the bonds and the performance of the obligations of the other 
corporations, firms, and individuals, and to assume, become responsible for, execute, 
and carry out any contracts, leases, or sub-leases made by any company to or with 
any other company or companies, individuals or firms whatsoever. 

[a 9 6] 



APPENDIX, NUMBER IX 

Sec. 4. The company hereby created shall also have power to enter upon and 
occupy the lands of individuals or of companies, on making payment therefor or giv- 
ing security according to law, for the purpose of erecting, constructing, maintaining, 
or managing any public work, such as is provided for or mentioned in the second 
section of this act, and to construct and erect such works thereon, and also such build- 
ings, improvements, structures, roads, or fixtures as may be necessary or convenient 
for the purposes of the said company, under the powers herein granted; and to pur- 
chase, make, use, and maintain any works or improvements connecting or intended to 
be connected with the works of the said company; and to merge or consolidate, or unite 
with the said company the improvements, property, and franchises of any other com- 
pany or companies, on such terms and conditions as the said company may agree 
upon; and to fix and regulate the tolls or charges to be charged or demanded for any 
freight, property, or passengers travelling or passing over any improvement erected, 
managed, or owned by the said company, or on any merchandise or property trans- 
ported over any road whatever by the said company, and to make, from time to time 
dividends from the profits made by said company; the several railroads managed by said 
company shall continue taxable, as heretofore, in proportion to their length within 
this state respectively; and the said Pennsylvania Company shall be taxable only on 
the proportion of dividends on its capital stock and upon net earnings or income, 
only in proportion to the amount actually carried by it within the state of Pennsylvania, 
and all its earnings or income derived from its business beyond the limits of this Com- 
monwealth shall not be liable for taxation. 

Sec. 5. The capital stock of said company shall consist of 2,000 shares, of the 
value of fifty dollars each, being #100,000, and with the privilege of increasing the 
same by a vote of the holders of the majority of the stock present at any annual or 
special meeting, to- such an amount as they may from time to time deem needful; 
and the corporators, or a majority of them, named in the first section of this act, 
shall have power to open books for subscriptions at such times and places as they 
may deem expedient; and when not less than 1,000 shares shall have been sub- 
scribed, and twenty per cent, thereon shall have been paid in, the shareholders may 
elect not less than three nor more than nine directors to serve until the next annual 
election, or until their successors shall be duly elected and qualified; and the directors 
so elected may, and they are hereby authorised and empowered to have and to ex- 
ercise, in the name and in behalf of the company, all the rights and privileges 
which are intended to be hereby given, subject only to such liabilities as other 
shareholders are subject to, which liabilities are no more than for the payment to 
the company of the sums due or to become due on the shares held by them; and 
should the capital stock at any time be increased, the stockholders, at the time of such 
increase, shall be entitled to a pro rata share of such increase, upon the payment of the 
instalments thereon duly called for; and whenever an increase of capital stock is made, 

[297] 



THE HISTORY OF THE STANDARD OIL COMPANY 

a certificate thereof, duly executed under the corporate seal of the company, and 
signed by the president and secretary, shall be filed with the auditor-general befort 
the same shall be deemed to be valid. 

Sec. 6. The principal office of the said company shall be in the City of Pittsburg, 
but the directors, under such rules and regulations as they may prescribe, may establish 
branches or agencies in other parts of the state, or elsewhere; all of the directors of 
said company shall be citizens of the United States, and reside therein. 

Sec. 7. The directors shall be elected annually by the stockholders, on the first 
Tuesday of June of each year; and they shall elect from their number, at the first 
meeting of the board after their election, a president, and shall also have power to 
elect from their number, or otherwise, a vice-president, a treasurer, and secretary, 
and such other officers, clerks, and agents as the business of the company may require; 
all elections for directors shall be by ballot, and every stockholder shall be entitled 
to one vote for each share of stock held by him; but no person shall be eligible as 
director who is not a stockholder to the amount often shares; at the annual or special 
meetings a quorum shall consist of stockholders owning at least one-half of the capital 
stock. 

Sec. 8. Ten days* notice shall be given, by publication, in two newspapers published 
in the City of Pittsburg, of the time and place of the annual election; which election 
shall be conducted by three stockholders, one of whom shall act as judge, and the 
other two as inspectors. 

Sec. 9. The board of directors shall make all by-laws necessary for conducting 
the business of the company; which by-laws shall at all times be accessible to persons 
transacting business with them; the said directors shall have power, by a vote of a 
majority of their number at any meeting of the board, to change the name of the 
said corporation; and by any new name, thus adopted, upon filing with the secretary 
of the Commonwealth and the auditor-general a truly certified certificate, the said 
company shall have, hold, and enjoy all the rights, powers, privileges, and immunities 
hereby granted; the directors shall have power to require payment of the amount 
remaining unpaid on the stock of said company, at such times and in such proportions 
as they shall think proper; the said assessment to be made as the by-laws of said com- 
pany shall direct. 

Elisha W. Davis, 
Speaker of the House of Representatives. 

Charles H. Stinson, 

Speaker of the Senate. 

Approved — The seventh day of April, Anno Domini, one thousand eight hundred 
and seventy. 

John W. Geary. 

[298] 



NUMBER 10 (See page 80) 

DRAFT OF CONTRACT BETWEEN THE SOUTH IMPROVEMENT 
COMPANY AND PRODUCERS OF PETROLEUM IN THE 
VALLEY OF THE ALLEGHENY AND ITS TRIBU- 
TARIES. DATED JANUARY, 1872* 

[From "A History of the Rise and Fall of the South Improvement Company," 
pages 121-122.] 

Agreement made and entered into this day of January, a.d. 1872, by and 
between the South Improvement Company, a corporation under the laws of Penn- 
sylvania, and embracing among its stockholders more than two-thirds (reckoned by 
their refining capacity) of the refineries of petroleum in the United States, parties 
hereto of the first part; and the Associated Producers of Petroleum, a corporation 
also organised under the laws of Pennsylvania, and embracing among its stockholders 
more than two-thirds (reckoned by the actual production of the crude petroleum at 
their wells) of the producers of petroleum in the Valley of the Allegheny and its tribu- 
taries, party hereto of the second part. Witnesseth. 

That whereas, The party of the first part has entered into certain contracts, viz.: 
The first with the Pennsylvania Railroad Company; the second with the Erie Railway 
Company; the third with the Atlantic and Great Western Railway Company; and 
the fourth with the New York Central and Hudson River Railroad, and the Lake 
Shore and Michigan Southern Railway Company, which contracts secure certain 
advantages in relation to the transportation of petroleum and its products, which it is 
the purpose of the contracting parties to use for the promotion of the common interests 
of the producers, refiners, and transporters of petroleum. 

To the end that the said object may be more fully attained the said parties hereto 
have covenanted and agreed, each with the other, as follows, viz. : 

I. The party of the first part, that it will appoint five of its members to form, with 
a like number of the party of the second part, a joint executive committee, who shall 
choose some competent and discreet person not of their number who shall serve as 
the chairman and the eleventh member of the joint committee. 

* This draft was presented to the committee in lead pencil. It was never presented to the producers. 
See P. H. Watson's testimony, Appendix, Number 12. 

[299] 



THE HISTORY OF THE STANDARD OIL COMPANY 

II. The party of the first part, that it will submit all questions, arising under said 
railroad contracts, which affect the interests of both producers and refiners, to the 
decision of the joint committee provided for in Article I of the agreement. 

III. The party of the second part, that it will appoint five of its members to con- 
stitute, with the five members of the party of the first part, the joint executive com- 
mittee provided for in Article I of this agreement; and will submit to said committee 
all the questions mentioned in Article II. 

IV. The said parties mutually, that the decisions of said joint committee on all 
questions, affecting the joint interests of producers and refiners, which shall be sub- 
mitted to them, shall be final and conclusive upon both the parties hereto. That upon 
the questions which shall at all times be held to affect the joint interests of both pro- 
ducers and refiners are the following, viz. : 

ist. The rates of transportation of both crude and refined oil. 
2nd. The price of crude oil at the wells and in the market. 
3rd. The price of refined oil in the market. 

4th. The amount of rebate and drawback which from time to time it may be 
necessary for the interests of the trade to ask from the railroads. 

V. The said parties mutually, that the joint committee shall meet once a month, 
and at any intermediate time, or times, at which a meeting shall be called by the 
chairman, or by any four of its members, to consider such questions as shall affect 
the joint interests of the parties hereto. 

VI. The party of the second part that it will agree to increase and lessen the aggre- 
gate production of crude petroleum, as the said joint committee shall direct, to adapt 
as nearly as practicable the supply of the same to the capacity of the markets of the 
world to absorb at a price remunerative to the producer, the refiner and the trans- 
porter. 

VII. The parties hereto mutually, that the said joint committee shall, at the begin- 
ning of each year, fix the minimum average price at which crude petroleum can be 
produced and delivered on board railway cars, which price shall be called the minimum 
cost of production — that at the same periods the said committee shall also fix the 
minimum average price at which crude oil can be refined, put up in packages and sold, 
which price shall be called the minimum cost of manufacture. 

VIII. The parties hereto mutually, that after paying the minimum cost of produc- 
tion of crude petroleum, the minimum cost of its manufacture, and the cost of trans- 
portation and storage, and shipping also, in the case of exported oil, the profits shall 
be apportioned between the producers and refiners, in the ratio of . . . per cent, to 
the former, and . . . per cent, to the latter. 

IX. The said parties, that in case of a temporary over-production of crude petroleum, 
the excess shall as far as practicable be taken and withheld from market, and an advance 
of three-fourths of the minimum cost of production advanced thereon by the party of 

[300] 



APPENDIX, NUMBER X 

the first part at eight per cent., intrust the party of the second part keeping the tanked 
petroleum insured in good and responsible companies to the full amount of the advance, 
one year's interest added. 

X. The said parties mutually, that the party of the first part shall only be bound 
to pay the prices and make the advances aforesaid, in case the producers shall in good 
faith obey the instructions of the joint committee, to limit production by stopping 
the drilling of new wells. 

XI. The party of the second part that it will keep a register of the date of the com- 
mencement of all new wells, the date at which the same shall be finished, the character 
of the well and the monthly production, and the date at which it may be abandoned, 
and that it will make it a condition, precedent to the holding of stock in its company, 
that the date aforesaid shall be finished by its stockholders. 

XII. Both parties, that it is the especial object of this agreement to bring the pro- 
ducers and refiners of petroleum into harmony and co-operation, by reciprocal, fair, 
and just dealing, for the promotion of their mutual interests, and everything in this 
agreement is to be construed liberally for the carrying into effect of this object. 



[301] 



NUMBER ii (Sec page 82) 



EXTRACTS FROM THE TESTIMONY OF W. G. WARDEN 

[From "A History of the Rise and Fall of the South Improvement Company," 
pages 30-41.] 

Washington, D. C, March 30, 1872. 

William G. Warden affirmed and examined. 

By Mr. C. Heydrick (Counsel). 

Q. Are you an officer of the South Improvement Company ? 

A. Yes, sir; or rather, I was. 

Q. What office did you hold ? 

A. I held the office of secretary during all the previous meetings, and was a director 
of the company. 

Q. When was the company organised ? 

A. Our minutes will show that, if you will allow me to refer to them, and I desire 
to put them in as evidence. On referring to the minutes I find that the corporators' 
meeting was held January 2, 1872. As I understand that these minutes are to go in 
as a part of the evidence, they will furnish you all the information you desire in 
regard to the organisation and proceedings of the company. 

[The chairman stated that the witness could refer to the minutes as memoranda, 
and that the committee would determine hereafter as to whether they should be re- 
ceived as evidence.] 

By Mr. Heydrick. 

Q. For what object or business was the company organised ? 

A. For refining oil. 

Q. That meeting was under the charter which has been presented ? 

A. That was the first meeting held after we got the charter. 

Q. The gentlemen who attended that meeting on the second of January were th< 
named in the act of the incorporation ? 

A. Yes, sir; they met and transferred the company under the charter over to t\ 
stockholders. 

Q. Did the incorporators named in the act transfer their interest to the stockholdt 
as you have stated on that occasion ? 

A. Yes, sir. 

[302] 



APPENDIX, NUMBER XI 

Q. What refining capacity does this company possess ? State the amount of capital 
and stock subscribed and put in ? 

A. At that time 1,100 shares, at £100 per share, was subscribed, and twenty per 
cent, thereon paid into the treasury. 

•••••• 

Q. Where did that company intend to refine oil ? 

A. Their calculation was to get all the refineries in the country into the company. 

Q. Was it the design of the stockholders to include all the oil refineries in this 
country ? 

A. Yes, sir; every one of them. 

• •••••• 

Q. Can you give us a list of the stockholders ? 

A. I can give you them from the minutes. They are as follows: 

William Frew 10 shares 

W. P. Logan 10 " 

John P. Logan 10 " 

Charles Lockhart 10 

Richard S. Waring 10 " 

W. G. Warden 475 " 

O. F. Waring 475 " 

P. H. Watson 100 " 

H. M. Flagler .180 " 

O. H. Payne 180 " 

William Rockefeller 180 " 

J. A. Bostwick 180 " 

John D. Rockefeller 180 " 

2,000 

By Mr. Sheldon. 

Q. What was the idea of getting all the refineries of the country into one organi- 
sation ? 

A. The idea when the company started was this: There is a large number of 
refineries in the country — a great deal larger than is required for the manufacture 
of the oil produced in the country, or for the want of the consumers in Europe and 
America; the capacity of the oil refineries in the country is, I think, 45,000 or 50,000 
barrels a day; we completed our organisation, and when we met together it was dis- 
covered that the parties present represented, in one way or another, a large portion 
of the refining interest in the country; of course all of us had our friends in the matter, 
who must be taken care of if any arrangement at all was made; and after discussing 
the matter at considerable length, it was decided to include within our company every 
refinery we could possibly get into it. We also had considerable discussion with 

[ 303] 



THE HISTORY OF THE ^STANDARD OIL COMPANY 

the railroads in regard to the matter of rebate on their charges for freight; they 
did not want to give us a rebate unless it was with the understanding that all the re- 
fineries should be brought into the arrangement and placed upon the same level; 
there was no difference made as far as we were concerned, in favour of or against 
any refinery; they were all to come in alike; that was the understanding from the first 
to the last. 

Q. Where are the refineries situated ? 

A. Situated in New York, Philadelphia, Baltimore, Boston, on the sea-board, 
and in the Oil Region, Pittsburg, and Cleveland. 

Q. You say you made propositions to railroad companies, which they agreed to 
accept upon the condition that you could include all the refineries ? 

A. No, sir; I did not say that; I said that was the understanding when we discussed 
this matter with them; it was no proposition on our part; they discussed it not in the 
form of a proposition that the refineries should be all taken in, but it was the intention 
and resolution of the company from the first that that should be the result; we never 
had any other purpose in the matter. 

Q. In case you could take the refineries all in, the railroads proposed to give you 
a rebate upon their freight charges ? 

A. No, sir; it was not put in that form; we were to put the refineries all in, upon 
the same terms; it was the understanding with the railroad companies that we were 
to have a rebate; there was no rebate given in consideration of our putting the com- 
panies all in, but we told them we would do it; the contract with the railroad com- 
panies was with us. 

Q. But if you did form a company composed of the proprietors of all these refineries, 
you were to have a rebate upon your freight charges ? 

A. No; we were to have the rebate anyhow; but were to give all the refineries the 
privilege of coming in. 

Q. You were to have the rebate whether they came in or not ? 

A. Yes, sir. 

Q. Were you to have a rebate upon the same freight charges that had been in ex- 
istence before ? 

A. No; the whole object of the railroad authorities was to get better freight prices. 

Q. What effect was this arrangement to have upon the producer or upon the re- 
fineries that did not go into your combination ? 

A. According to our opinion of it that is the way we have got into this trouble; 
we have been misconstrued and misrepresented as to our purposes all over the country; 
the whole object was, and our whole talk was, as far as any of my friends came into 
the matter, or as far as I myself was concerned, that the producers should receive a 
better price for their oil; we calculated to get five or six dollars a barrel for crude oil; 

[304] 



APPENDIX, NUMBER XI 

that was from the beginning of our talk until the end of it; we had not our company 
organised, or at least the organisation was not completed, nor the contract signed, 
until all these disturbances commenced to be gotten up; we thought the matter would 
quiet down and we would get a chance to explain our position and put ourselves right; 
we asked for the opportunity to do so; we have evidence of that in the telegrams we 
sent, and I can say, under oath, that they were sent in good faith; there was never an 
idea in my mind that they were not. ... I will state further that this matter was dis- 
cussed with Mr. Scott by myself, personally, and in very great length, and also with Mr. 
Potts, who never has had any interest and never any part in this contract, and who 
spoke of this very matter from the start, expressing the opinion that it could not succeed 
unless the producers were taken care of. That was understood by us all from the start 
in every discussion we had, and by the railroad people as far as I heard from them. 
I can only answer for the railroad people from the conversation I had personally 
with Mr. Scott and Mr. Potts, in which it was perfectly understood that we could 
not succeed in carrying out these measures for our own benefit and the benefit of the 
railroads without the co-operation of the producers, and the only point we discussed 
was whether it should be a combination or co-operation. I took the ground personally 
against forming a combination inasmuch as the interests of the producers were in 
one sense antagonistic to ours, one as the seller and the other as the buyer. We held 
in argument that the producers were abundantly able to take care of their own branch 
of the business if they took care of the quantity produced. They were only liable to 
depression from our production, therefore they had in their own hands directly the 
power of holding the market at six or eight dollars a barrel. 

Q. You did not take into consideration the good of the consumers of the country, 
which is by far the larger part of the population of the country ? 

A. Yes, we did. 

Q. You wanted to put up the price of oil ? 

A. In answer to that I will state that the producers and refiners were both suffering 
under the depression that existed. The refiners were not getting enough to pay their 
expenses. All we asked was a fair refiner's profit. 

Q. What effect were these arrangements to have upon those who did not come 
into the combination or co-operation, as you have termed it, as to the price to be 
charged for transporting their oil, both refiners and producers ? 

A . I do not think we ever took that question up. 

Q. Were the railroad companies to charge the same increase of freights to those 
who did not come into the combination that they did to you without giving them a 
rebate ? 

A. Yes, sir. 

Q. Now in case you could control the oil produced by these people in any com- 
bination that you made, were you not to have a rebate upon the oil ? 

[ 305 ] 



THE HISTORY OF THE STANDARD OIL COMPANY 

A. We were not to have a rebate, we were to have a drawback. 

Q. What is the difference between a rebate and a drawback ? 

A. There is not much difference in one sense. A rebate is made at the time we 
pay our freight; a drawback is made afterward. 

Q. That is a technical, rather than a real, difference, is it not ? 

A. I want to state it as you will find it in the contract. 

Q. The effect was that those who did not go into the combination could not get 
their oil as cheaply as you could ? 

A. No, sir; they could not; I want to explain in what relation that occurred and 
why this arrangement was made. I may say that it never entered into my head that 
the refineries would not all be brought in; a fair manufacturer's profit was all we 
wanted. They were all to be brought in on equal terms, and the object of the drawback 
was not to cover all the oil to be refined in this country, but only the oil that was to 
be exported. 

Q. If all had gone into the combination, then the result would not have been to 
injure the producers and refiners, but to injure the consumers of the country ? 

A . No, sir; the purpose was not to injure them. 

Q. Would it not have been to increase the price of oil, if you had increased the 
cost of freight ? 

A. Yes, sir. 

Q. You say the railroad companies were going to increase the rate of freight any- 
how; they had the right to do that if they were carrying too low, but would that justify 
them in increasing the rates of freight to such an extent that they could afford to give 
you a sum of money for it ? 

A. I will tell you how that was done. The men in our trade are a very hard kind 
of men to hold. Those of us who deal in oil know that when we have purchased a 
lot, they would deliver it in New York for less than anybody could afford to deliver 
it. That has been the fact almost continuously ever since 1869. Oil has been delivered 
in the East for less money than was apparent from any rates known to the market ; 
less than even we who refined it could deliver it for. The railroads were kept con- 
stantly besieged by one or another, and they were continually cutting under other 
routes for New York or for Cleveland, so that nobody knew what the rates were. They 
have been paying rebates, more or less, for the last two years. 

Q. And you contemplated an increase of rates for the simple purpose of having 
the railroads divide with you ? 

A. There was no divide. 

Q. A rebate is a divide to a certain extent, is it not? The proposition was that 
there should be taken out of the producers and consumers of this country a certain 
percentage of the freight for you ? 

[306] 



APPENDIX, NUMBER XI 

A. It was done to prevent this cutting of roads one under another, and to prevent 
speculation. 

Q. Was it not done for the purpose of oppressing the producers and consumers of 
this country ? 

A . I can only deny that such was the object, or that such would have been the 
effect. 

Q. Has it been the practice of both the producer and refiner to make combinations 
from time to time by storing oils, and by large shipments abroad to affect the general 
price in the market ? 

A. The producers have made such combinations on the creek, and a few of the 
refiners and merchants made two combinations in 1868, which was known as the 
Deboe combination, and in 1869 and 1870 the Bull Ring, as they called it; but there 
was no combination that I knew of on the part of the producers, except among them- 
selves; they have several times combined among themselves. 

Q. Have there not been combinations of producers, refiners, and merchants to 
affect the price of oil ? 

A. There have been all kinds of combinations. 

Q. Is there not at this time, if not invalidated by a change of directors of the Erie 
Railroad Company, a combination between officers of that road and certain parties 
in New York by which they control the price of coal ? 

A. If I were allowed to say what I think, I should reply in the affirmative and to 
say that one great reason why we went into this arrangement was to stop that Erie 
combination, which was a great source of difficulty; we could not get hold of the matter; 
we would ship a cargo of oil at a fair price to-day, and would be compelled to sell it 
to-morrow at a much less price; this arrangement did break up that combination 
entirely, so that there is no combination of that sort to-day. 

By the Chairman. 

Q. I understand that your larger combinations swallowed up the Erie combination. 

A . It destroyed it at the time. 

Q. Yours was somewhat in the direction of the Erie combination, but larger ? 

A. No, sir; it was not; the Erie was with some merchants, ours embraces the whole 
refining interest in the country; that was different; I will state that since I came into 
this Capitol I have been told that the very men engaged in prosecuting this investiga- 
tion have a combination by which they intend to run up the price of their oil; I hope 
they will; I do not care what means are used, so that we can carry on our business, 
and pay just what others have to pay. 

Q. I understand you to say that under your arrangement the cost of crude oil might 
be increased $ 1.25 a barrel, and that there is produced about 18,000 barrels daily 

[307] 



THE HISTORY OF THE STANDARD OIL COMPANY 

in the Oil Regions of Pennsylvania, but not that on an average; can you state from 
memory about the amount of annual production ? 

A . I have a circular here which gives the statement as 5,775,000 barrels. 

Q. So that the production in round numbers for last year was 6,000,000 barrels; 
now, of this #1.25, how much were you to get as your drawback if you had carried 
out your arrangement ? 

A. The maximum we would have been entitled to receive is one dollar a barrel. 

Q. Then on this production you would have received $6,000,000 a year, and the rail- 
road companies an additional sum of $1,500,000; in other words, under your arrange- 
ment the public would have been put to an additional expense of $7,500,000 a year. 

A . What public do you refer to ? They would have had to pay it in Europe. 

By Mr. Negley. 

Q. Were there not at the same time combinations upon the part of producers to 
affect the price of oil in the market ? 

A . There were not at the time we started this matter; I do not know of any just at 
that moment; there have been over and over again. I want to state that a large portion 
of our oil product goes to Europe — of this very crude oil which Mr. Sheldon talks 
about; I have here a circular to which I call the attention of the committee, which 
bears out our position in this matter; I desire to put it in evidence because it gives 
the general opinion of merchants connected with the exportation of crude oil. It has 
been the impression of everybody in the trade that the oil exported should pay us 
an additional amount in this country, to be divided between those interested in the 
handling of it and the producing of it, to the extent of eight or ten millions a year; 
I have had that figured out three, or four, or five successive years. We have shown 
over and over again that that amount ought to be retained in this country. I have been 
engaged for several years in the oil business, and I have yet to sell one barrel to bear 
the market. I have always been upon the bull side of the market; I believe there 
ought to be in this country a better price for oil to every one engaged in it. In 1868, 
1869, and 1870, there were movements in oil which brought to this country millions 
of dollars; and if the producers had refrained from sending forward their oil beyond 
the requirements of the market, the price ^ould have been sustained. That has been 
the trouble always in making movements for a higher price. There is no man in this 
country who would not quietly and calmly say that we ought to have a better price 
for these goods. 

By the Chairman. 

Q. Do you mean a better price here, or a better price for that exported ? 

A . You could not get a better price for that exported without having a better price 
here. 

Q. That is what the committee wants to know, whether it is necessary, in order 
to keep up the price abroad, to keep up the price at home ? 

[308] 



NUMBER 12 (See page 82) 



EXTRACTS FROM THE TESTIMONY OF PETER H. WATSON 

[From "A History of the Rise and Fall of the South Improvement Company," 
pages 76-96.] 

Washington, D. C, April 5, 1872. 

By Mr. Townsend. 

Q. From such testimony as you have given this morning, am I correct in under- 
standing that this whole arrangement was suspended before its completion and before 
anything was done under it ? 

A. Yes, sir. 

Q. That no completion of contracts was consummated ? 

A . No, sir; the conditions of the original understanding about the contracts, on 
which alone they were to go into effect, had not been complied with. 

Q. And a further arrangement was necessary to make it a complete contract ? 

A. Yes, sir, the South Improvement Company had to enter into a contract, such 
substantially as I have furnished a draft of here, to give the producers the full benefit 
of everything connected with the contract before the contract itself could go into effect. 

Q. There are three principal interests connected with the oil trade ? 

A. There are, the producers, refiners and transporters; no injustice could be done 
to either interest without affecting, injuriously, the others. The object of the railroads 
in this matter was to promote the interests of the trade in order to promote their own 
interests. 

By the Chairman. 

Q. You say there were three interests, producers, refiners and shippers ? 

A. Yes, sir, connected with the trade. 

Q. And that the object of all these arrangements was to protect these three interests ? 

A. To protect these three interests and incidentally, of course, protecting the general 
interest in doing that, for this is peculiarly an American traffic. 

Q. It was in the direction of increasing to each of these parties, respectively the 
benefits and profits of the business ? 

A. Yes, sir, that each might receive a fair profit. The railroad companies had not 
been receiving cost for transportation, and it was to save them from loss, for they 
had been transporting at a loss during the whole of the year 1871. 

[309] 



THE HISTORY OF THE STANDARD OIL COMPANY 

Q. Well, that is to increase profits, is it not ? 

A. Yes, to save from loss. 

Q. Did it look to increasing in any way the benefits of cheapness to the consumer ? 

A. Yes, sir. 

0. How? 

A. By steadying the trade. You will notice what all those familiar with this trade 
know, that there are very rapid and excessive fluctuations in the oil market; that when 
these fluctuations take place the retail dealers are always quick to note a rise in price, 
but very slow to note a fall. Even if two dollars a barrel had been added to the price 
of oil, under a steady trade, I think the price of the retail purchaser would not have 
been increased. That increased price would only amount to one cent a quart, and I 
think the price would not have been increased to the retail dealer because the fluctua- 
tion would have been avoided. That was one object to be accomplished. Moreover, 
there is only one-sixth of the oil produced here consumed in this country — a very 
small proportion of the product. In discussing what compensating advantage would 
arise from an increase of price, the railroad companies considered, in the first place, 
that there was a very great compensation afforded by a steady trade. 

Q. Will you state to the committee how, with your mode of arriving at these con- 
clusions, that cheapness to the consumer is promoted by stability in trade — how that 
arrangement which gave $1.50 a barrel to the South Improvement Company benefited 
either the railroad company or the producer ? 

A. Well, sir, in the agreement you will observe that the maximum rebates and 
maximum rates are stated. These maximum rebates were exceptions to the rule, which 
is a cardinal principle in the contract. The actual rates were to be kept as near to 
net rates as possible. Moreover, this was a contract which, before it was to go into 
effect, would have been a contract with the producer as well as the refiner. 

Q. Does this contract show that ? 

A. The draft of a contract which I have presented to the committee, and which 
was to have been entered into with the producers before the contracts with the railroad 
companies went into operation, shows that. 

Q. Does this contract say that anything was to be done in behalf of the producer 
before it was to go into operation ? 

A. Not on the face of the contract; it was only a condition on which it was delivered 
to me. 

Q. A written condition so that it would become a part of the contract ? 

A. It was a part of the contract. 

Q. I asked you whether there was anything in writing ? 

A. I said there was nothing in writing on the face of the contract, but nevertheless 
it was an essential part of it. 

Q. It seems to be essential now that it should be a part of the contract ? 

[3IO] 



APPENDIX, NUMBER XII 

A. It was all the time so considered from the beginning. 

By Mr. Hambleton. 

Q. Was this draft of a contract with the producers drawn prior to the execution of 
the railroad contracts ? 

A. Yes, sir, the draft was drawn prior to that. 

By the Chairman. 

Q. What is the date of that pencilled draft of a contract ? 

A. I could not give you the date of it ; it was written in the office of the Lake Shore 
Railroad Company. 

Q. At what place? 

A. New York. 

Q. State as near as you can the date ? 

A. I should say it was probably in December; either late in December or in the 
beginning of January, probably in December; indeed, I am very confident it was before 
I went home at Christmas. 

Q. Has any copy of this ever been printed ? 

A. No, sir. 

Q. This is all there was of it ? 

A. Yes, except discussion; we discussed the matter. 

Q. I mean all there was committed to writing ? 

A. Yes, sir, all there was then committed to writing. 

Q. Is it all there was as far as making out a contract is concerned ? 

A. Yes, sir. 

Q. Was this submitted to the producers as a body or individually ? 

A. We were very anxious to submit it to the producers, and I asked them to appoint 
a committee that we might do it, but they had got up such an excitement at the time 
that nothing was practicable. 

Q. When was that ? 

A. Before the last of these contracts was signed. 

Q. Can you give the dates at all ? 

A. I cannot give the dates, but the contract with the Lake Shore road had not been 
signed at the time. 

Q. What producers did you ask to call a meeting ? 

A. Among others I addressed a communication to be delivered to a gentleman who 
was understood to be the chairman of a meeting about to be held. 

Q. What was his name ? 

A. Foster W. Mitchell, of Franklin. 

Q. You addressed a communication to him, of what purport ? 

A. Asking him to appoint a committee to meet a committee of the South Improve- 
ment Company, that they might know what the objects of the South Improvement 

[311] 



THE HISTORY OF THE STANDARD OIL COMPANY 

Company were. I proposed to submit these contracts with the railroad companies 
to that committee and also the form of contract which the railroad companies re- 
quired the South Improvement Company to enter into with the producers, before 
these contracts went into effect. 

Q. Have you a copy of that communication or letter ? 

A. It was a telegram. 

Q. Have you a copy of it here ? 

A. I have not at present. 

Q. Have you it in your possession, anywhere, and can you lay it before the committee ? 

A. I may have it; am not sure. 

Q. Did you receive a reply to that communication ? 

A. Yes, sir. 

Q. Was it stated in your communication that you proposed to lay before the com- 
mittee the form of contract to be entered into with the producers ? 

A . No, sir. I proposed to lay that before the committee if it should be appointed. 

Q. If you are not able to furnish a copy of that communication I will ask you to 
state orally its contents. 

A. I could not give you the words of it; it was in general terms asking that they 
appoint a committee to confer with a committee of the South Improvement Company. 

Q. To confer in reference to what ? 

A . I do not know that I should be safe in undertaking to say; I know what my 
object was in writing it. 

Q. That you have stated. If you received a reply from Mr. Mitchell, state whether 
it was by letter or telegram. 

A . I received a reply by telegraph from Mr. Mitchell, stating that the meeting of 
the producers received the communication with scorn — as of course they would if 
read to them, as a mass-meeting is always called for a specific object. 

Q. That was not in his reply ? 

A. No, sir, it was not. I replied to him that I had intended the communication 
to him to be for the purpose of laying it before a few of the principal producers; that 
to lay the proposition before the meeting was of course to insure its defeat, because 
the meeting had convened for a predetermined purpose, which was to denounce and 
treat with scorn the South Improvement Company, because the South Improvement 
Company had been represented to them as hostile to their interests. This last perhaps 
was not in the communication. 

By Mr. Hambleton. 

Q. Have you a copy of that paper which you addressed to Mr. Mitchell ? 

A. I am not sure whether I have or not. It was a telegram. 

Q. Did that substantially close the written communications between you and the 
producers upon that subject ? 

[312] 



APPENDIX, NUMBER XII 

A. No, sir. I had a great many communications with individual producers; I 
think with more than half the producers, estimating them by the quality of oil produced. 

Q. State what occurred. 

A . I have corresponded with them and in that correspondence they have expressed 
their belief that the proposed plan of the South Improvement Company would work 
greatly for the benefit of the producing interest; that there was something greatly needed 
for the producing interest, and that it could not thrive without something of this kind, 
because it could not pay fair, living rates, for transportation to the railroad companies 
at the price oil was bringing, and that there was no likelihood of oil increasing in 
price under the existing condition of things; that the railroad could not always, of 
course, continue carrying at a loss. 

Q. Will you give the names of the producers who proposed to join the South Im- 
provement Company, or who expressed themselves favourable to the plan of that 
company, in addition to the name of Mr. Mitchell ? 

A . I could give you the names of several of them, but I do not think their lives 
and property would be safe. They requested me not to mention their names because 
they thought it would be an imprudent thing to do. 

Q. You refuse, then, to give the names which you say you could state ? 

A . I refuse to give the names for the reason I have stated. 

Q. Are there any of them you are willing to mention ? 

A . I will look over the letters and see whether there are any of them not marked 
confidential. If there are any not so marked, I will give you the names. 

Q. Why do you state to this committee that you are not willing to give the names 
of the parties to whom you refer, when you state that a great many producers were 
in favour of this plan, and were consulted in regard to it ? 

A . I stated it because it was a fact. 

By Mr. Sheldon. 

Q. Did the danger to the lives of these parties arise from the excitement in the 
Oil Regions in consequence of these proceedings ? 

A. Yes, sir, one of the presidents of one of the committees representing the pro- 
ducers was in New York, a Mr. Patterson. He stated, as I understood, to one of 
the railroad officers, that he did not think my life would be safe if I were to go into 
the Oil Region, although he himself would not take it. I had received a number of 
threatening letters, but I did not attach any importance to them until Mr. Patterson 
made that statement. 

By the Chairman. 

Q. What was the reason given why your life would not be safe ? 

A. I do not know that the reason given, I think by Mr. Patterson, that there was 
such an unreasonable excitement among the people as to the nature and object of the 

[313] 



THE HISTORY OF THE STANDARD OIL COMPANY 

South Improvement Company, which was represented to them to be a measure 
altogether hostile to them. 

Q. Do you know what these misrepresentations were ? 

A. I only know by what I have seen stated in the papers and what persons have 
mentioned to me. 

Q. Did you make an effort to correct the false impressions ? 

A. I did; the papers called for the other day by the committee, and which I have 
here to-day to produce, will show that. 

Q. Were your efforts to correct these misrepresentations successful ? 

A. No, sir, they were not. I will read the despatches which I sent for the purpose of 
endeavouring to do that, and you will see from them the nature of the efforts I made. 

Q. Sent to whom ? 

A. I sent a despatch to F. W. Mitchell through S. P. McCalmont of Franklin, 
which I have here. 

The Chairman. — We will not stop to read them. 

Witness. — It will answer your question in a great deal shorter period than I could 
answer it verbally. 

The Chairman. — We will put the answers themselves in as testimony. 

Witness. — Then I will read this as my answer, if you please, because it expresses 
as fully as I could express the facts you desire to know. 

The Chairman. — Very well, you may hand the despatches to the reporter, and 
they will go in as a part of your testimony, and save the committee the time of reading 
them. 

Witness. — You can hardly comprehend the answer without hearing the despatches. 
There were three despatches, showing the efforts I made to have the producers under- 
stand that the whole arrangement was one which looked as much to their interest 
as to any other. 

The Chairman. — Very well, you may furnish them to the committee; we will not 
stop to read them now. 

Witness. — I then offer you first my despatch to S. P. McCalmont, dated New York, 
March 4, 1872. I next offer another despatch from myself to F. W. Mitchell, dated 
New York, March 5, 1872, and also a despatch from myself to the same party, dated 
New York, March 6, 1872. 

The despatches referred to are as follows: 

S. P. McCalmont, New York, March 4, 1872. 

Franklin, Pennsylvania. 
Your telegram received. Please deliver the following communication to F. W. 
Mitchell, or, in his absence, to somebody else who will make its contents known to 
the principal producers attending the meeting to be held to-morrow at Franklin: 

[314] 



APPENDIX, NUMBER XII 

To F. W. Mitchell: 

Yesterday I received by mail from you or some other friend in Franklin several 
newspaper slips, one of which threatened the destruction of my oil at Franklin. At 
the same time I received an anonymous letter threatening injury to the Jamestown 
and Franklin Railroad. Disapproval of my connection with the South Improvement 
Company is alleged as the reason of both threats. This morning the telegraph informs 
me that the threat to destroy my oil has been executed by tapping the tank and letting 
it run to waste. While there may be some excuse for working up the present excite- 
ment to induce people to subscribe their money to new railroad schemes, there can 
be nothing but reprobation for the lawless destruction of property. You have sufficient 
character and influence, and sufficient information of the purposes of the company, 
to quell this excitement by a word, and I think it your duty to say that word. It seems 
to me that a great responsibility rests with somebody among you for stimulating the 
present causeless excitement, and the lawless destruction of property. On meeting 
you here on your return from the South, I explained to you, very briefly, that the 
whole plan of the South Improvement Company was founded upon the expectation 
of co-operation with the oil producers to maintain a good price for crude oil, as the 
only means of securing a fair remuneration to either the transporter, the refiner, or the 
merchant. 

Unless the producers will co-operate with us, first, by limiting the production or 
the capacity of the markets of the world to absorb petroleum at a good price; and, 
secondly, by tanking a large part of the production for the next two or three months, 
that it may be withheld from the market until the present glut is exhausted and pro- 
duction reduced, it will be impossible, I am convinced from recent advices of the 
state of supply and demand in the principal markets of the world, to keep the price 
of crude oil up to $3.50, and of refined oil up to twenty-two cents, during the coming 
summer. 

I stated to you in the strongest terms the desire of the South Improvement Company 
to enter into an arrangement for a series of years with the producers, whereby good 
prices for crude oil at the wells and fair and reasonable rates of transportation would 
at all times be assured. The desire still exists. You expressed to me your concurrence 
in these views, as others among the leading producers whom I have more recently 
seen have also done. 

I then explained to you certain important business which I had postponed to await 
the organisation of the South Improvement Company. That business I have been 
engaged upon for the last ten days. As soon as I get through with it, which I hope 
will be in a few days, I should like to meet a committee of the principal producers to 
arrange the details of the plan of co-operation of which we spoke. I therefore request 
you to have such a committee appointed by the meeting noticed for to-morrow on 
the newspaper slip sent to me, and if possible have a plan prepared by which, among 

[31s] 



THE HISTORY OF THE STANDARD OIL COMPANY 

other things, we could extend to you large facilities of tankage and capital to take 
care of the surplus oil until the present production can be checked. 

P. H. Watson. 



To F. W. Mitchell, New York, March 5, 1872. 

Franklin, Pennsylvania. 

Just received another batch of newspaper slips giving proceedings of Oil City 
meeting. 

The meeting acted in ignorance and under a radical misconception of the actual 
facts, and with far more earnestness and zeal than judgment. 

If you will take the trouble to appoint a committee of producers to investigate, we 
will show that the contracts with the railroads are as favourable to the producing 
as to any other interests; that the much-denounced rebate will enhance the price of 
oil at the wells, and that our entire plan in operation and effect will promote every 
legitimate American interest in the oil trade. 

You patiently test a well before deciding upon its merits, like rational men. You 
examine other subjects before acting upon them. Is not this a subject of sufficient 
importance to be worthy of rational investigation ? 

P. H. Watson. 



To F. W. Mitchell, New York, March 6, 1872. 

Franklin, Pennsylvania. 

Your telegrams received. 

My telegrams were not addressed to the mass-meeting, but to you as a friend, as 
is also this, to be read at your discretion to some of the principal producers attending 
the meeting, simply to induce them to investigate the subject about which they are 
excited before acting upon it. 

A mass-meeting is not a deliberative body; it always acts under the feeling of impulse 
or passions, and meets for predetermined purposes, one of which in this case, as appears 
in the articles of the newspapers calling the meeting, was to denounce and show its 
scorn for anything and everything connected with the South Improvement Company. 
Hence it required no prophet to tell beforehand in what spirit my telegrams to you 
would be listened to. You ask me to go to Franklin to consult my true friends. I 
will most gladly meet you and your friends at any place favourable to calm investiga- 
tion and deliberation, and therefore outside of the atmosphere of excitement by which 
you are surrounded, say at Albany or New York. 

I can well understand that, however, the excited people of your region may misjudge, 
they have no other purpose than to promote the public interest, and knowing that you 
deservedly enjoy their confidence, I am strongly convinced that a free and frank 
interchange of views at the conference suggested would result in satisfying you and 

[316] 



APPENDIX, NUMBER XII 

the people that there exists no cause for regarding us as enemies. I therefore hope you 
will name an early day for the meeting. 

P. H. Watson. 

Mr. Gilfillan. 

I would like to suggest a question that would throw a little light upon this subject, 
and which I know Mr. Watson will be entirely satisfied to answer. I wish the chairman 
would ask if the objects of the South Improvement Company, in connection with 
railroads, were presented to the public through any statement in writing or by telegraph 
to the public, explaining the objects. 

The Chairman. — I am coming to that, but first I want to know of the witness, 
whether he received any replies to these despatches ? 

A. Yes, sir, to one of them. 

Q. Have you a copy of that ? 

A. I have not, but I have stated the purport of the answer. To the first I did not 
receive any answer; there was not time to receive any, and I did not expect it. I 
sent the second shortly after, and the answer was to the first and second together. 
To the third I received no telegraphic answer. 

Q. You say you have no copy of these answers you received ? 

A. I have not. I gave the purport of the answer I received at the last meeting. 

Q. Were there any other letters or statements published by your authority to 
the public or to parties in interest among the producers ? 

A. These were not published by my authority. 

Q. Was there any other matter published by your authority, giving explanation to 
the people? 

A . I made similar statements to a great many of the producers. 

Q. I mean documentary evidence; was there anything published over your sig- 
nature ? 

A. Oh, I did not publish any document at all; I did not publish this. 

Q. Did you authorise it ? 

A. I neither published it nor authorised it, because I considered it useless; the 
people were so excited that they could not be reasoned with at all. Every one who 
informed me about it said so. 

Q. Did you offer to any of the producers, or any parties in interest to show them 
these contracts ? 

A. Yes, I wanted that committee appointed for that purpose; I told them so sub- 
stantially in my despatch. 

Q. Did you make the offer otherwise ? 

A. I told them that I would, if that can be considered as an offer. I said I would, 
and I should have done it if they had come to meet us; but they were afraid. 

[317] 



THE HISTORY OF THE STANDARD OIL COMPANY 

Q. Would you have published it, do you mean ? 

A. I should have been perfectly willing to publish the contract; I should have been 
glad to have published everything in connection with the matter. 

Q. If you would have been glad to have published it, why did you not ? You had 
the power. 

A. I would have been very glad to have done it, with the assent of these men. 

Q. With the assent of what men ? 

A. The producers. I said to some of the producers that if they would go and examine 
the whole plan, and after they had examined into it they were not satisfied that it 
was for their interest, I would be perfectly willing to abandon the whole thing. That 
was the feeling we had in regard to the matter. 

Q. What producers did you say that to ? 

A. Several of them. 

Q. Mention their names. 

A. Men with whom I had been in correspondence with on this subject, and whose 
lives and property I believe would not be safe if I were to mention their names, because 
they have told me so. I have promised not to expose them, and I feel in honour bound 
not to give their names. 

Q. You have so promised in regard to all of them ? 

A. Most of those with whom I have had correspondence. 

Q. Was there any opportunity offered to explain this matter, to show the contracts 
and let them know what were the objects of your company ? Are there no names you 
can mention in that connection ? 

A. I shall have to look over the letters in order to see if there are any not marked 
confidential. I should like to give you the names if I am at liberty to do so. 

Mr. Gilfillan. 

I should like to make a suggestion which would throw a little light on this sub- 
ject. If the chairman will allow me, I will ask the witness if he saw the proceedings 
of the meeting at Franklin, to which he refers, and if so, whether a resolution was not 
passed at that meeting asking for the production of these contracts that the public 
might know what the objects of this company were ? 

A. I have seen no such resolution; I do not think I have seen the published pro- 
ceedings of that meeting; I only saw such parts as were sent to me in slips. There 
was certainly no such resolution as that which came to me. Mr. Mitchell telegraphed 
to me that my telegrams were received with scorn; that they did not want to know 
anything about the matter. 

Q. Do you remember whether, about the first of March, the railroad companies, 
with which you made these contracts, or some of them, raised their rates of transpor- 
tation ? 

[318] 



APPENDIX, NUMBER XII 
A. I think about that time they did. 

Q. Was it for a short time raised to that amount, and a printed schedule pub- 
lished ? 

A . I never saw the published schedule; I understood that through a mistake between 
William Vanderbilt, vice-president of the New York Central Railroad Company and 
freight agent of the Lake Shore road, it was supposed by the freight agent of the Lake 
Shore road that the rate had been raised by an agreement among the railroads to 
the maximum rates mentioned in their contracts with the South Improvement Com- 
pany. A day or two after that mistake, being in Mr. Vanderbilt's office, a telegram 
came in respect to it, and Mr. Vanderbilt at once directed the correction to be made. 
Mr. Devereux, the general manager of the Lake Shore Railroad, happened to come 
in at the time, and he also gave directions to the officers of his road to have the 
correction promptly made. 

Q. Were you present? 

A. Yes, sir, I was present. When I said "being in Mr. Vanderbilt's office," I meant 
that I myself was present. 

Q. Was the correction made at your instance, or request, or suggestion ? 

A. It was not. 

By Mr. Hambleton. 

Q. Why was it made ? 

A. Because it was a mistake, a misapprehension, a misunderstanding, as I under- 
stood. I had not heard anything of it before that moment, and it was accidental, as 
I said, that I heard it. 

By the Chairman. 

Q. Then the rates were raised by the freight agents of the roads to correspond 
with the rates mentioned in these contracts ? 

A. I do not know the facts any further than having heard it as I have stated. 

Q. And you think they were raised to correspond with these contracts by mistake ? 

A. I stated I so understood at the time. 

Q. You stated the circumstances so minutely as to its being a mistake between 
Mr. Vanderbilt and the Lake Shore agent, that I inferred you knew the facts ? 

A. I only know it was so represented at the time. 

Q. Did you take any part in that conversation by which the error you speak of 
was corrected ? 

A. Only in this sense: Mr. Vanderbilt mentioned the fact to me that a mistake of 
that kind had been made, that he had just received a despatch in relation to it, and 
he was about to correct it, and he asked me, I think, if I knew whether Mr. Devereux 
had given any orders respecting the matter. I told him I did not know anything 
about it. 

[319] 



THE HISTORY OF THE STANDARD OIL COMPANY 

Q. If I understand you, the time had not come for raising the freights under these 
contracts then ? 

A. I do not know anything about the time; I did not intend to make any such 
statement. 

By Mr. Hambleton. 

Q. At that time, as president of the South Improvement Company, was it not the 
understanding, and was it not your expectation, that the rates would go up at that ! 
time as they did go up to the maximum rates named in these contracts ? 

A. I do not know that as president I had any knowledge of the matter; and asf 
an individual I took no part in the transaction. 

Q. The president is an officer supposed to know more about such details than any 
of the directors or members of the company; and as president of that company I ask 
you if it was not the general understanding that the rates would go up about that time ? 

A. I answer distinctly that it was not, and that as president of that company I 
had nothing to do with the rates then, because the South Improvement Company's 
contracts had not gone into operation, and neither the South Improvement Company 
nor any of its officers had any control of the question in any way. 

Q. Had not the contracts at that time been signed ? 

A. The contracts had been signed, but they were held by me personally in escrow 
and they had not gone into effect. 

Q. They had been signed ? 

A. Yes, but had not gone into effect. 

Q. Were not these contracts so signed and held by you as president of the South 
Improvement Company, and did you not expect that the rates would advance to the 
maximum named therein at that time ? 

A. Certainly I did not; and in regard to the premises stated in the first part of 
your question I do not want to admit the statements you made. I do not suppose the 
object was to entrap me into an admission of a statement that is not true. 

Mr. Hambleton. — I do not wish to entrap you into anything. 

Witness. — I say that when you remark that I hold these contracts as president of 
the South Improvement Company, you mistake; they were not in my hands as presi- 
dent. 

Q. I supposed that as president they passed into your hands ? 

A. They were passed into my hands as a person, and as such, in execution of the 
trust, I should hold them as much against the South Improvement Company as against 
anybody else. 

Q. You answer my question then that you did not expect them to raise these rates ? 

A. Certainly I did not; I had no such idea at all. 

Q. State how that mistake, or misunderstanding, or error, happened to occur, 
and what was the cause of it ? 

[320] 



APPENDIX, NUMBER XII 

A. I really do not know; it was suggested at the time by Mr. Devereux that Mr. 
Hills, the freight agent of the Lake Shore Railroad, had a son on his death-bed, that 
he had to leave the office in charge of subordinates, and that he had not his wits about 
him as usual, because his mind was so pre-occupied with the sickness of his son, who 
was a favourite son. 

Q. If he had not his wits about him, had he the contracts ? 

A . I do not wish to use that expression in any offensive sense; I mean he had not 
the full use of his mind. I do not know whether he had the contracts or not. I think 
it is probable from the conversation there that all the freight agents had the rates 
mentioned in these contracts; I have no doubt that the officers of the roads had con- 
sulted him; indeed some of them stated that they had been consulted, and that the 
freight agents knew what rates were provided for in these contracts. 



Q. I want an answer to my question. By your contracts with the railroad com- 
panies you were to purchase all the refineries in the main cities of this country. You 
had it in your power to furnish more transportation than anybody else ? 

A. The refineries were not purchased; they have not been purchased. 

Q. Was not that contemplated ? 

A. The company contemplated purchasing if it had gone into operation. 

Q. I am getting at the point now; if your scheme had been successful do you sup- 
pose anybody in the world could have furnished an equal amount of transportation 
with your company ? 

A. If our plan had been carried out it included everybody; there would have been 
nobody left, and no hostile interest. 

Q. You would have had the matter perfectly under your control ? 

A. Yes, because there would have been nobody left. 

Q. Then I am correct in saying that nobody else could have shipped oil under any 
circumstances, because you were to have an additional rebate in case any rebate 
was allowed to any other person ? 

A. But if all interest was drawn into the plan, there would have been no hostile 
party and no injustice done to anybody. 

Q. That is a different matter; now we agree that your advantages of rebate from 
the leading roads gave you the power of paying larger prices to the oil producers than 
anybody else ? 

A. It was expected that these rebates would enable the refiners and producers to 
maintain a fair price for crude oil at the wells. 

Q. Will you answer my question ? Could you not have purchased oil and shipped 
it with these rebates, on terms that nobody else could compete with ? 

A, If everything had been successful, if the South Improvement Company had 

[321 ] 



THE HISTORY OF THE STANDARD OIL COMPANY 

gone into successful operation, combining all these various interests, of course we 
could have paid a higher price than anybody else. 

Q. Do you not see then that you had the producers of the Oil Regions absolutely 
in your control ? 

A. No, sir. 

Mr. Sheldon. — I do. 

Witness. — I do not, and will tell you why; you asked me a question that is a good 
deal like attempting to make the Bible prove that it says itself "that there is no God." 

The Chairman. — All our time is being expended in this way. Will you answer 
the direct question put to you ? 

Witness. — I want to answer it truly. It is an essential part of this contract that the 
producers should be joined in it; therefore it was not hostile to the producers in any 
of its intents or purposes; it never would have gone into effect unless the producers 
had joined. 

By Mr. Sheldon. 

Q. That may be the fact, but if the producers had refused to join, could you not 
have forced them into the arrangement on your own terms ? 

A. No, sir; because the South Improvement Company had no contract. 

Q. You have a contract ? 

A. No, sir; it has no contract. 

Q. Did it never have ? 

A. No, sir; they are placed in escrow with me. It has never had any, that is, there 
is not to-day and has not at any time been a contract in existence, in activity, or in 
force between the railroads and the South Improvement Company. 

By Mr. Hambleton. 

Q. Is not that entirely due to the excitement produced in consequence of the con- 
tracts having been entered into ? 

A. If the purchasers had entered into the contract which was contemplated by the 
South Improvement Company, it would have been entirely satisfactory to all parties, 
and both contracts would have gone into operation. 

Q. And if a party of the producers had joined, you could have forced the balance 
to have gone into the arrangement ? 

A. Two-thirds were required. 

Q. You could have forced the balance to have gone in ? 

A. The majority rules in most kinds of business; unless two-thirds had joined, no 
arrangement would have been made. 

Q. Let us see whether you have not power to force the producers; by your contract 
with the railroads you had the advantage of forty cents a barrel to Cleveland and Pitts- 
burg, and #1.06 to New York, Philadelphia, Baltimore or Boston on crude petroleum; 
while on refined petroleum you had the advantage to these cities of fifty cents a barrel, 

[322] 



APPENDIX, NUMBER XII 

and from any other point to New York, Philadelphia, Baltimore and Boston of 
thirty-two cents a barrel; it seems to me at that advantage you could have compelled 
the producers to do exactly what you wanted them to do ? 

A. The South Improvement Company never could have had that advantage, because 
the condition on which the main contract with the railroads was to be enforced was 
that the producers should join with them and participate in the benefits. 

Q. Is that embodied in the different contracts ? 

A. The condition is not embodied upon the face of the contract; it is a condition 
upon which I held the contracts. 

Q. Now Mr. Watson, as a lawyer, if you are such, are verbal conditions made with 
a third party to change the terms of a written contract executed in all respects ? 

A . Let me give you an illustration within my experience that is exactly parallel 
to this: I had a note executed, sealed, and complete in every way, put into my posses- 
sion to be delivered upon the production of a deed. 

The Chairman. — Wait a moment, there must be some kind of order in this pro- 
ceeding. I wish you to answer the question which has been asked you, whether as 
a lawyer the conditions stated would change the terms of a written contract. If you 
are able to give an answer to that legal question you may do so. 

Witness. — Let me hear the question and I will endeavour to answer it fully, if you 
will allow me to answer it in my own way. 

By Mr. Sheldon. 

Q. The question is, whether a verbal understanding to be performed by other 
parties not embraced in the written contract can be made effective to modify the 
terms of that contract as between the parties to it. 

A. An agreement between the parties to a contract, whether verbal or written, 
fixing the terms upon which the contract shall go into effect, is perfectly competent 
and would be binding. 

Q. That is your opinion as a lawyer ? 

A. That is my opinion. 

Q. Now, sir, these contracts contemplated a considerable increase in the freight 
charges, both upon crude and refined petroleum ? 

A. They contemplate an increase almost up to the price for coal and lumber, as 
they are ordinarily carried, amounting to about I \ cents a pound. 

Q. Did it contemplate an increase upon both crude petroleum and refined oil ? 

A. Certainly; the railroads had been carrying these articles at a loss of nearly a 
million dollars; they carried for less than cost, and one object of these contracts was 
to increase the price of freight to the railroads. 

The Chairman. — Let me suggest the propriety of first answering the question and 
then giving your explanation. That is the regular course, and I am sorry to say that 
during your whole examination there has not been a direct answer given to a question. 

[323] 



THE HISTORY OF THE STANDARD OIL COMPANY 

Witness. — Well, sir, where a question is such that it would give a false impression] 
unless answered fully and fairly, I do not want to convey that false impression by 
my testimony. 

Mr. Sheldon. 

Q. Very well, I am satisfied with your explanation; now could not these railroad 
companies have raised the price of freight without the intervention of the South Im- 
provement Company ? 

A. There were a good many difficulties in the way. 

Q. Could they not have done it, and had they not the power to do it ? 

A. The laws of the State of New York forbid the Erie and New York Central 
Railroads from combining to raise the rates of freight; whether they could have done 
it I do not know. They tried very hard to agree to raise the freights but did not succeed. 

Q. If that is the law of New York, is there an exception to that law so that they 
could combine with the South Improvement Company ? 

A. I think it was the opinion of lawyers that this arrangement was perfectly legal 
and proper; they could not combine, but they could make an independent agreement. 

Q. They could raise the rates in your behalf, but they could not in the behalf of 
anybody else ? 

A. Not in behalf of anybody, but they could make this transaction. For two or 
three years they had been cutting under for the purpose of drawing the business away 
from each other. 

Q. What effect would this increase of freight have upon the consumers of oil ? 

A. I think it would not be to the prejudice of the consumers in this country at all. 

Q. Would it not have increased the price ? 

A. I think it would not have increased the price to the retail consumers in this 
country. If there had been no countervailing advantage to the retail consumers, of 
course it would have increased the price. 

Q. You mean to say that there was such a margin upon the traffic of oil that to 
increase the freight charges fifty or ioo per cent, would not affect the retail price ? 

A. No, sir; I do not mean to say that is the reason. 

Q. Is that not the effect of your answer ? 

A. No, sir, I think not. My explanation of it is this: that the oil trade, unless it 
is steadied by some artificial process, is subject to violent and rapid fluctuation. 
The retailers are very quick to note a rise in price, as I explained the other day, but 
very slow to notice a fall, so that the average price of a retail purchaser is very much 
above the average wholesale price. Now it was expeetcd that the price under this ar- 
rangement would be a steady price, and that with a steady, regular price it would 
not cause the retailer to raise the price at which he sold at all. 

Q. Do you know what profit is made on a barrel of oil sold by retailers to con- 
sumers in Northern Ohip-? 

[324] 



APPENDIX, NUMBER XII 

A. It varies. 

Q. Does it ever reach over #1.75 a barrel ? 

A. I can answer your question with a little calculation. (After computation.) I 
have known it to be sold at as low a profit as forty cents a barrel. About six or eight 
cents a gallon is a fair profit. 

Q. We gentlemen are supposed to be acting for the public good; will you tell us 
what public interest you are advancing, or thought you were advancing in making 
the arrangements that are foreshadowed in these contracts ? 

A. We were advancing the interests of the railroads, the transporting interest, the 
interest of the producers, those who mine oil, the interest of the refiners, those who 
manufacture it, and the interests of the American trade and business generally, for 
five-sixths of the oil produced is exported, and an increase in the price of crude oil 
at the mines is essential to the payment of a fair business profit to the refiners; it is 
essential to the payment of a fair rate of transportation, because without a higher 
price of transportation more profit to the refiners could not be paid long and allow 
the producer pay for his labour at the average price of oil last year. 

Q. Do you not think the interests of trade in this country are better promoted by 
leaving everybody to attend to their own matters and protect their own rights rather 
than by forming a combination as you did ? 

A . It is essential in many cases beyond individual means to form combinations. 
Railroads cannot be built without the co-operation of a great many individuals. There 
are a great many other operations that cannot be managed successfully without co- 
operation, and this is one of them. 

Q. Did the producers ask you to go into this operation ? 

A . The most intelligent producers did, and to-day, my judgment is, that they are 
all satisfied that something of that kind is necessary for the protection of American 
industry. 

Q. Did the consumers ask you to go into it ? 

A. Not any considerable number of consumers; we ourselves are all consumers. 
The body of them did not. 

Q. How much money would the railroad companies have made under these con- 
racts if they had shipped oil at these advanced rates ? 

A. They would have made about the same profits on that business that they do 
►n coal and lumber, even if the maximum rates had been paid without any rebate; 
not so much if the net rates only had been charged. 

I By the Chairman. 
Q. State whether in your judgment it was necessary, in order to make provision 
for these people for the South Improvement Company to receive this million dollars 
a year for the benefit of American interest, as you have suggested. 
A. There was no such provision made, as I understand it. 

[325] 



THE HISTORY OF THE STANDARD OIL COMPANY 

Q. The testimony is that about six million barrels a year are shipped; the pro- 
visions of this contract are that a rebate to that company, supposing the maximum 
to have been charged, should be over a dollar a barrel. 

A. No such thing as charging maximum rates was ever contemplated. The contract 
on its face says it is a cardinal principle that the gross rates shall be kept as near the 
net rates as possible. 

Q. Suppose it had been kept at the gross rates, your company would then have 
received over six million ? 

A. That would be altogether different from the principles on which the contract 
was based. 

Q. If the gross rates which the contract allows had been paid, however, the South 
Improvement Company would have received a rebate of over six million dollars ? 

A. Certainly, supposing such an absurdity. 

Q. Why did you put such an absurdity in the contract ? 

A. It is not in the contract, as I stated. 

By Mr. Hambleton. 

Q. It is the contract as a maximum ? 

A. But it is also expressly stated that the rates shall be kept as near to net rates as 
possible. 



[326] 



NUMBER 13 (See page 93) 



CONTRACT OF MARCH 25, 1872 

[From "A History of the Rise and Fall of the South Improvement Company," 
pages 27-28.] 

I. That all arrangements for the transportation of oil after this date shall be upon 
basis of perfect equality to all shippers, producers and refiners, and that no rebates, 

drawbacks, or other arrangements of any character, shall be made or allowed that 
will give any party the slightest difference in rates or discrimination of any character 
whatever. 

II. That the present rates from Oil City, Union, Corry, Irvineton, Pittsburg, Cleve- 
land and other competing points, shall be and remain in full force at following rates : 

ON REFINED OIL, BENZINE, ETC. 

Per barrel 

From Oil City, Union, Corry and Irvineton to Boston #1.65 

From Oil City, Union, Corry and Irvineton to New York 1.50 

From Oil City, Union, Corry and Irvineton to Philadelphia 1.35 

From Oil City, Union, Corry and Irvineton to Baltimore 1.35 

From Cleveland to Boston 1 .65 

From Cleveland to New York 1.50 

From Cleveland to Philadelphia 1.35 

From Cleveland to Baltimore 1.35 

From Pittsburg to New York 1.50 

From Pittsburg to Philadelphia 1.35 

From Pittsburg to Baltimore 1.35 

ON CRUDE OIL 

From Oil City, Union, Corry and Irvineton to Boston #1-5° 

From Oil City, Union, Corry and Irvineton to New York 1.35 

From Oil City, Union, Corry and Irvineton to Philadelphia 1.20 

From Oil City, Union, Corry and Irvineton to Baltimore 1.20 

From Oil City, Union, Corry and Irvineton to Cleveland 5° 

From Oil City, Union, Corry and Irvineton to Pittsburg 50 

And said rates shall not be liable to any change either for increase or decrease without 
first giving to William Hasson, president of the Producers' Union at Oil City, at least 
ninety days' notice in writing of such contemplated change. 

[327] 



THE HISTORY OF THE STANDARD OIL COMPANY 

III. In the distribution of cars for shipments, it shall be done without discrimina- 
tion. 

IV. On the basis as hereinbefore stated, the parties respectively agree to carry out 
the arrangements in good faith and work for the mutual interests of each other. 

In witness whereof the parties have hereunto affixed their signatures, this twenty- 
fifth day of March, a.d. 1872: 

For the Lake Shore and Michigan Southern Railroad Company: H. F. Clark, 
President. 

For the Erie Railway Company: O. H. P. Archer, Vice-President. 

For the New York Central and Hudson River Railroad Company: William H. 
Vanderbilt, Vice-President. 

For the Atlantic and Great Western Railroad Company: George B. McClellan, 
President. 

For the Pennsylvania Railroad Company: Thomas A. Scott, Vice-President. 

On behalf of the Producers and Refiners: G. Shamburg, E. G. Patterson, 
William Hasson, Henry Byrom, William Parker, John J. Fisher, Oil Creek 
Producers and Refiners. 

J. J. Vandergrift, A. P. Bennett, William M. Irish, William T. Scheide, 
Oil City Producers and Refiners. 

Henry H. Rogers, F. C. Fleming, Josiah Lombard, Jr., New York Refiners. 

B. Vaughan, Boston Refiners. 



[328] 



NUMBER 14 (See page 100) 

TESTIMONY OF HENRY M. FLAGLER 
[Before a committee appointed by the Legislature of Ohio, March, 1879.] 

Henry M. Flagler; residence, Cleveland, Ohio; occupation, secretary Standard Oil 

>mpany; sworn and examined. 

By Mr. Norton. 

Mr. Flagler, I suppose you understand that this investigation is brought under 

tat is known as House Resolution Number 162 ? 
I understand that it is. 

Q. How long have you been secretary of the Standard Oil Company ? 

A. Since its organisation, some time in January, 1870. 

Q. Are the articles manufactured or the oil refined by your company shipped over 
the line of any railroad in the State of Ohio, and if so, state whether or not any rate 
of freight is contracted for by you or whether your company pays the freight ? 

A. To the first question, yes, sir; more or less of the product of our refineries is 
shipped over the railroads of the state. As a rule all of the freight contracts have been 
made by me. 

Q. Please state as near as you can what proportion of your product is shipped 
out of the state ? 

A. Well, I should say from sixty-five to seventy per cent. 

Q. Now, has your corporation any contracts, written or verbal, with any of the 
railroads of the State of Ohio for carrying your freight ? 

A. Yes, sir. 

Q. You may state whether these contracts are written or verbal. 

A. They are written. 

Q. Have you heretofore, prior to this time, any contracts written or verbal ? 

A. We have. 

Q. You may state, Mr. Flagler, whether by virtue of these contracts it has been 
agreed or allowed by the railroad companies to pay you any drawbacks or rebates 
on freights. 

A. No, sir, it has not. 

Q. You may state whether or not you are allowed special rates, or what is known 
as special privileges. 

[329] 



THE HISTORY OF THE STANDARD OIL COMPANY 

A. I can't answer that question from the fact that I do not know what other people 
get, so I do not know whether they are special rates or general. 

Q. I believe, Mr. Flagler, that in your subpoena it was requested of you that if 
any such contracts were in existence relative to freight matters, you would bring 
them before the committee. Did you do so ? 

A. I have never seen the subpoena, so I do not know what the demand was. I 
have, however, contracts made with our company as far back as the first one ever made. 

Q. Can you produce these contracts before this committee ? 

A. Yes, sir, I can; I am willing to do so, provided they may be used by the com- 
mittee — if it is proper to ask, to be used in the nature of a confidential communication. 
None of these contracts provides for any discrimination whatever, but they may contain 
some business secret of the Standard Oil Company, whose interests I am bound to 
protect. I do not see how the submission of those contracts as evidence in this case 
will do other than bear out the statement I have made under oath. I do not see how 
they will do anything more than sustain the statements I have made. I would be very 
glad to have our company set right before the public in these matters, but I do not 
care enough about it, however, to have our business contracts made public. I should 
be very glad to submit them to you under such circumstances. 

Q. Mr. Flagler, do you know anything about the rates of freight from the Southern 
portions of the state, well, say from Marietta and from Wheeling to the City of 
Columbus ? 

A. I do not. 

Q. Did you have anything to do, or has the Standard Oil Company anything to 
do with the making of the rates of freight for the company known as the Camden 
Consolidated ? 

A . None whatever. 

Q. Have you anything to do with the making of the rate, or the arranging of 
the freights for the company known as the Marietta Oil Refining Company ? 

A. None whatever. 

Q. Testimony introduced here shows, I think, Mr. Flagler, that about one year 
ago the rates of freight were raised nearly one-half from the points I have mentioned 
and from Parkersburg and other places to points in this direction. Had the Standard 
Oil Company any understanding by and between the railroad companies in regard 
to this rise in the rates of freight ? 

A. I should say, to my own knowledge, positively no; I never heard of it before. 
I do not know what the rates were and I did not know that the raise had been made. 

Q. Do you in your capacity, or does the Standard Oil Company through its agents, 
control the rates of freight or make the rates of any of the oil companies in Cleveland, 
outside of your own corporation ? 

A. No, sir. 

[330] 



APPENDIX, NUMBER XIV 

Q. Mr. Flagler, what is your rate of freight from the seaboard, or to the seaboard 
from Cleveland ? 

A. At the present time ? 

Q. Yes, sir, at the present time. 

A. Do you mean per carload or by the barrel ? 

Q. Well, we'll put it by the barrel, as there is some testimony before the committee 
relating to that. 

A. I do not know that I could answer the question and I do not know but that I 
would be betraying the business interests of other people. The custom for several years, 
in fact, for more than five years, has been that the rates of freight on shipments to 
the seaboard and export oil have been made by what is called trunk lines, the New 
York Central, the Erie, now New York, Lake Erie and Western, the Pennsylvania, 
and Baltimore and Ohio. The general freight agents are the officers who make those 
rates, and their Western connections share in them. I do not know how the freight 
which is paid for services rendered is divided between their Western connections, 
having no means of knowing that at all. We do not make any contracts with the Lake 
Shore for the rates of freight, and the same is equally true of the Atlantic and Great 
Western. These are the only two roads we ever ship by — I may be wrong; we ship 
some by way of Pittsburg, over the Cleveland and Pittsburg or over the Baltimore 
and Ohio. 

Q. Do you know what the open rate, the published rate is to the seaboard by the 
barrel ? 

A. To Boston and New York, $1.54!; to Philadelphia and Baltimore, $1.29$. 

Q. Now, Mr. Flagler, you have used your pencil to arrive at that conclusion, why 
was it necessary to figure out that matter if there is a published rate ? 

A. Simply because I do not keep that thing in my mind and had to call upon my 
memory for the way the thing is got at. I got at that by deducting what is called the 
crude rebate. Nobody pays the crude rebate which is 45^ cents. Whether that form is 
kept up by the railroad companies I do not know, but my impression is k is not. 

Q. It is a fact, isn't it, that you do get a lower rate and pay less freight than the 
published rate ? I believe it is in evidence that the open rate of freight to the seaboard 
will average about #1.65. 

A. I have never seen the freight tariff, if you mean that which is known as the 
schedule rate published for the public. I have not seen anything of the kind and do 
not know anything about it. 

Q. What inducement does your company offer to the railroads or what propositions 
are made by the railroads to your company ? Now, I refer to the testimony given by 
Mr. Hills in regard to the carrying of oils, etc., what inducements do the railroad 
companies give whereby they lower your rate of freight ? 

A. They do not give us lower rates of freight for any consideration of that kind. 

[331] 



THE HISTORY OF THE STANDARD OIL COMPANY 

They pay us for the use of our property, if we furnish them with terminal facilities, 
cars in which to haul the goods, they pay us a compensation for the use of the property. 
Perhaps I can give it so you can understand it; we keep a separate account with each 
refinery and if we spend #50,000, or #100,000 to create what we term terminal facilities, 
warehouses, loading places, etc., we make an arrangement whereby they pay us a 
fair compensation for the property that is created by our money. That consideration 
is credited to that investment and has nothing whatever to do with the freight. The 
refinery making the oil is charged with the rate of freight just as anybody else pays, 
and the compensation for the use of tank cars and terminal facilities at the shipping 
and receiving ends of the line is given for the use of these ends. I will say that in the 
contracts we have made, the railroad companies have expressly reserved the right 
to give to other parties the same privileges if they furnish the same conveniences. 

Q. Does the Standard Oil Company own and control the Camden Consolidated 
Company at Parkersburg ? 

A. Well, I would like to ask a question in reply, and that is, whether that question 
and answer comes within the scope of this resolution ? 

Q. I will give you my reason for asking the question. It has been charged here by 
witnesses that there is a collusion by and between the railroads in the Southern part 
of the state and the Camden Consolidated Oil Company or the Standard Oil Company, 
as they term it, for discriminations in the rates of freight. Now, to find out whether 
or not there is anything for which to blame the Standard Oil Company, I ask this 
question. 

A. Well, it is a business secret of our company, but considering the circumstance, 
I will answer the question. The Standard Oil Company doesn't own or control the 
Camden Oil Company, and I would say to every man explicitly and fully that the 
Standard Oil Company doesn't own a share of stock in the Camden Consolidated 
Company. I say this so I may be understood and I hope I have done so. I do not 
own a share in it myself. 

Q. Coming back to this question of the contracts, have you any of the written 
contracts that have been or are now in force, that you can give this committee; con- 
tracts between the railroad companies traversing this state and your company ? 

A. Yes, sir. (Contracts produced.) The price for the shipment of oil per barrel as 
given in the first contract for the year 1870 was as follows: From the first of February 
to the first of June, 1870, $1.40; from the first of June to the first of November, 1870, 
#1.20; this was during the season of navigation. From the first of November until 
the expiration of the contract, April 1, #1.60. 

Q. Is there a line or clause in that contract whereby there is an agreement for re- 
bates or drawbacks ? 

A. None whatever. 

Second contract read: In this contract the rates were as follows: From the first 

[332] 






APPENDIX, NUMBER XIV 

of April until the middle of November, 1872, about seven months, £1.25. For the 
remainder of November, December, January, February and March of 1873, £1.40. 
These were rates per barrel. 

Q. Were there no rebates, drawbacks, or special privileges given outside of what 
is written in the contract ? 

A. None whatever. (Third contract introduced.) 

Mr. Flagler: I want to say something of this matter and I want to tell the whole 
truth. Our business was at the time about 4,000 barrels a day and we had contracted 
this oil for delivery at once, and we had to pay from #50 to $150 gold per day if we 
kept it an hour longer than the time specified in the contract, so it was very important 
for us that the railroads put these on board as rapidly as possible. 

Q. Mr. Flagler, from the reading of that contract I see that you might, instead 
of being benefited, sustain damages by the failure on the part of the railroad company 
to get your oil in there. Did you ever have to pay any demurrage to them ? 

A. Yes, sir, we had to pay some years as high as $30,000. 

Q. Have you ever received any benefits by reason of these contracts that any other 
shipper might not have received ? 

A. No, sir. Not in the slightest. All the way through these contracts you will observe 
that we have undertaken those risks which the law imposes on the common carrier 
and which no railroad can divest itself of except by written agreement. The handling 
of these quantities of oil was a very serious matter; there was a constant tendency 
on the part of the railroad companies to put cars used in this trade to some other 
purpose, whenever it would pay them better. They used a rack car, such as they 
could carry cattle in and we have had a great deal of trouble with these roads in the use 
of those cars, because if they could get cattle to haul from Chicago to St. Louis for 
something more than they were getting from us they would do it. I want to say what 
the facts are under the contract just read. You will remember that during seven 
months of the year we were to give them 4,000 barrels of oil per day or 100,000 barrels 
a month, and the smallest of the shipments in those months was 108,000. We gave 
them during the rest of the time more oil and paid them the contract on it when we 
could have shipped by canal for forty cents less. On the first day of December, a 
competing line of railway lowered the rate to $1.05 per barrel. I went to Mr. Vander- 
bilt and told him that the rate should be maintained at the agreed price or else we 
would not have made the contract with him. I said to Mr. Vanderbilt that if he insisted 
in the fulfillment of the contract basis and exacted the payment of the contract price, 
it would result in our being compelled to close our refineries, for we could not afford 
to pay $1.25, when other people were only paying $1.05. I called his attention to 
the fact that during the season of canal navigation we had given the maximum ship- 
ments of oil, 180,000 barrels a month, and some in excess of it, and paid $1.25. I 
said, if you will reduce these rates to the rate made by the Pennsylvania Company, 

[333] 



THE HISTORY OF THE STANDARD OIL COMPANY 

in my judgment thirty days will not elapse before they will be willing to restore their 
rates, and all we ask is to be put on a parity with other shippers. After a moment's 
hesitation he asked if I thought he ought to stand all of this twenty cents. I told him 
if he should stand any part of it he should stand it all. I said, it is a transportation 
fight and not a fight of the manufacturers. When it comes to competition of the manu- 
facturers we would take care of ourselves. I said that we would not have made this 
contract except on their assurance that the contract price of #1.25 was to be main- 
tained. He said: "I will make your rate #1.05," and this was after we had done more 
than we had agreed to do under the contract. The next day we sold between 50,000 
and 60,000 on the basis of $1.05 per barrel. Mr. Vanderbilt allowed that rate of pay- 
ment for one month and then said he would exact the contract price, $1.25. I said 
all right, and we shall ship just the amount of oil we are compelled to ship to fulfill 
our contract and then we shall stop. We paid him #1.25 for all over the month 
and then we did not run a barrel of oil from the City of Cleveland more than that 
until the expiration of this contract for three months. That is the good that the contract 
worked on us. You might consider it a baby act to plead the equities of the case, but 
we could not place our oil on the market and compete with other refineries. 

(Fourth contract introduced.) 

Q. This is the only contract you have now in existence whereby you carry your 
freight? 

A. Yes, sir. 

Q. Do you know anything of the suits brought by Teagle and Company against 
the Lake Shore road for discriminations in freight ? 

A. Nothing whatever. 

Q. Have you had since the organisation of your company any understanding outside 
of these contracts whereby discriminations are made in favour of your company as 
against any of the smaller refineries of the state ? 

A. No, sir. 

Q. Has your company or corporation in conjunction with the railroads ever operated 
so to "squeeze out" as they term it, or injure any other refining company of the state, 
outside of the Standard Oil Company ? 

A. No, sir, never. I would like to enlarge upon that question. I suppose it would 
be fair to the mind of every member of this committee present. A very large business 
with other mechanical contrivances and an experience which grows up with and comes 
along with business and always doing a very large business, in the nature and order 
of things should make its presence felt by the parties doing a comparatively small 
business. In 1873 and 1874, when we stipulated for those 4,000 per day, if anybody 
has followed the progress of the Standard Oil Company they would know and I feel 
justified in saying that we have done a very large business, and aimed to do it with 

[334] 



APPENDIX, NUMBER XIV 

economy and give the purchaser the very best oil manufactured, consistent with a 
good and safe kind of oil — to manufacture at one point under the eye of one man. 
With an aggregation of capital and a business experience, and hold upon the channels 
of trade such as we have, it is idle to say that the small manufacturer can compete 
with us, and, although it is an offensive term, "squeezing out," yet it has never been 
done by the conjunction of any railroads with us or by the carrying out of freights. 



[335] 



NUMBER 15 (See page 106) 

THE PITTSBURG PLAN 
[From the Oil City Derrick, May 17, 1872.] 

1. Refiners to lease to the company for five years their superstructure with sufficient 
real estate to carry on the business of the works. 

2. That the rental be eight per cent, per annum on the appraised value of the super- 
structure, and the company to assume all risks and pay all ordinary taxes. 

3. Lessors to pay into the treasury of the company for a working capital one-half 
of the appraised value of the superstructure in cash or the equivalent in refiner's stock. 

4. Said lessors to receive for money paid in as above the bonds of the company, 
in amount equal to cash paid in, and stocks of the company for an equal amount; 
said bonds payable in five years or at the option of the company after one year, said 
bonds to be denominational coupon bonds to bear interest at the rate of eight per 
cent, per annum, payable semi-annually. 

5. The company shall not pay annually more than ten per cent, on the stock as 
dividends until the said bonds are redeemed. 

6. After the bonds are paid, then the company shall have the right and shall be 
obliged to purchase all said superstructure at the full appraised value first made, and 
shall give in exchange for the same stock of the company for the full amount. 

7. Each district shall appoint a local committee of three persons to make appraisals, 
and when any appraisements are being made, the chairman of each local committee 
shall be required to be present to take part in the appraisement. 

There shall be a board of appeal which shall be composed of the chairman of each 
local committee. All presidents of the company shall be presidents ex officio of the 
board. 

The committee shall place a cash valuation on the superstructure and shall be 
instructed as to the manner in which the valuation shall be obtained. 



[336] 



NUMBER 1 6 (Sec page 117) 

"THE AGENCY" 
[From the Oil City Derrick.] 

I. There shall be established, under the auspices of the Council of the Petroleum 
Producers' Association of Pennsylvania, an organisation under sanction of the laws 
of Pennsylvania, which shall be known as "THE PETROLEUM PRODUCERS' 
AGENCY." 

II. The capital stock shall be not less than one million dollars, and shall be divided 
into shares of one hundred dollars each, which shall be subscribed only by members 
of the Petroleum Producers' Association, or by such other persons as may be approved 
by the Council. 

III. No transfers of the shares of the capital stock shall be made on the books 
of the Agency, except upon such conditions as the directors may prescribe, subject 
to the approval of the Council. 

IV. The business of the Agency shall be managed by a board of thirteen directors, 
who shall be elected annually by the stockholders. 

V. There shall be an advisory board to consist of one member elected by each local 
association and approved by the Council. The members of the advisory board shall 
be admitted to the meetings of the board of directors and shall be entitled to all the 
privileges of directors, except that of voting. Any member of the advisory board may 
be removed for any abuse of his trust, or for official misconduct, by a vote of three- 
ourths of the Council at a regular meeting. 

VI. The local associations may appoint committees to solicit and receive subscrip- 
ions to the capital stock; they may also appoint responsible trustees to receive payments 
>n account of such subscriptions, to whom the subscribers shall pay at least ten per 
ent. upon their subscriptions at the time of subscribing. The committees of the local 
ssociations shall advise the president of the Council, from day to day, of the amount 
f subscriptions received by them, and whenever the sum of at least one million dollars 
hall have been subscribed in good faith, and approved by the Council, and the organi- 
ation of the Agency legally completed, subscribers shall be notified to hold an election 
f directors. The directors shall, as soon as practicable after their election, proceed 
) elect a president, secretary and treasurer. The trustees, appointed by the local 

[337] 



THE HISTORY OF THE STANDARD OIL COMPANY 

associations to receive subscriptions, shall thereupon be required to pay over to the 
Agency the amounts received by them on account of subscriptions to the capital stock. 
The Agency shall not be responsible for any subscriptions paid to the trustees ap- 
pointed by the local associations until the same shall have been paid over to the Agency 
or its authorised representatives. 

Subscriptions to the capital stock may be received, payable in oil at five dollars 
per barrel, delivered on the cars or in the tanks of the Agency at any sub-agency on 
the line of the railways; provided, however, that no certificate of stock shall be issued 
in any case in which payment is made in pipe-line receipts until the oil shall have 
actually been received upon the order by the Agency or its agents. But a special 
guaranty of the order shall be required from the subscriber with an agreement that 
the stock shall be retained as security for the delivery of the oil on demand, and the 
demand shall be made within thirty days after the order for the oil is received by the 
Agency. 

VII. Members of the Petroleum Producers' Association shall sell their oil only to 
the Agency. The Agency shall purchase all the oil offered by members of the Associa- 
tion and shall pay therefor at least five dollars per barrel for oil of standard grade, 
and for the heavy oil of the fifth district. Payment for oil purchased shall be made 
as follows : If the market will take the entire supply as fast as offered, the full market 
price shall be paid in cash on delivery; but if the board of directors, or the Council, shall 
determine that the oil daily offered to the Agency is in excess of the demand, the Agency 
shall pay three dollars in cash and give the seller a certificate entitling him to the net 
proceeds of the oil when sold, less the amount advanced thereon. 

VIII. The Agency shall sell no oil for a less price than five dollars in cash, on delivery 
per barrel without the consent of the Council of the Petroleum Producers' Association. 

IX. To the redemption of the certificates, on and after the tenth of the month 
succeeding that in which they were issued, shall be applied the proceeds of all the 
oil sold and delivered during that month, less the amount advanced and the amount 
required to tank the surplus oil. For the unpaid balance of the certificate the holder 
shall, upon the surrender of the same, be entitled to a tank receipt representing 
his interest in the amount of surplus oil in store and tankage. 

X. The Agency shall be entitled to receive for buying and selling the oil such com- 
missions per barrel as the Council may allow, applicable first to the payment of 
expenses, second to the payment of dividends on the capital stock, which shall be 
six per cent, semi-annually, free of taxes. 

XI. All the net proceeds of surplus oil sold shall be applied specifically to the 
redemption of the tank receipts at their value, the surrender of which shall be at the 
option of the holder. 

XII. The Agency shall establish sub-agencies at such points within the oil-producing 
district for the receipt, storage, and shipment of oil as may be necessary to facilitate 

[338] 



APPENDIX, NUMBER XVI 

the convenient and economical transaction of the business of the region, subject to 
the approval of the Council. 

XIII. The Agency shall provide all storage necessary to hold the oil on sale and 
the surplus oil in store. 

XIV. The price on the cars of oil of the standard grade shall be uniform at all 
the sub-agencies on the line of the railways within the oil-producing district, provided 
it be practicable to so arrange with the railroads. 

XV. A barrel shall be uniformly forty-two gallons. 

XVI. Whenever the production of petroleum shall be permanently in excess of the 
demand the Council of the Petroleum Producers' Association shall determine at 
what time the production shall be restrained and shall take such measures as may 
be practicable, necessary, and lawful to prevent the drilling of oil wells, but it shall 
confine its orders, so far as practicable to preventing the starting of new wells, allowing 
those already in process of drilling to be completed. 

XVII. Whenever in the opinion of the board of directors it may be advisable they 
may, subject to the approval of the Council, provide such refining capacity as may 
be required to maintain the highest price for crude petroleum consistent with the 
consumptive demand. 

XVIII. The Agency shall not at any time sell to, or contract with, or make any 
arrangement whatever, with any individual, organisation, combination, or association, 
by which they may have a monopoly, inside rate, advantage or preference over, or to 
the prejudice of, any present or future competitor for the purchase of the crude oil 
coming into, or passing through its hands; provided, that nothing in this section shall 
be so construed as to prevent the Agency, with the sanction of the Council, from 
making such temporary discrimination as may be necessary for the purpose of pro- 
tecting or promoting the interests of producers by securing higher prices for crude 
oil, increased consumption of refined oil, or decreased margins between the price of 
crude and refined oil. 

XIX. The Agency, with the approval of the Council, may take such measures 
as may be expedient to increase the consumption of petroleum by securing its applica- 
tion to new uses. 

XX. The Agency shall publish daily a correct statement showing the amount of 
oil purchased, the oil sold, and oil placed in store during the day; also showing the 
points at which the same was done and the amounts at the time in store at the various 
sub-agencies; also the destination of the oil sold. 

XXI. The Agency shall publish tri-monthly, full and complete reports of all its 
transactions and showing its condition at the date of the report; the correctness of 
the report shall be verified in such manner as may be prescribed by the Council. 

XXII. A committee may be appointed by the board of directors, or by the Council 
Df the Petroleum Producers' Association, at any meeting, for the purpose of investigating 

[339] 



THE HISTORY OF THE STANDARD OIL COMPANY 

the condition and management of the affairs of the Agency; and it shall be the righ 
and duty of such committee, duly appointed, to thoroughly investigate everything 
affecting the interest of the Agency, to examine its books, accounts and vouchers 
its safes, vaults and tanks; and to make a true and faithful report of the condition and 
management of the affairs of the Agency as they may be found, which report shal 
be published at the expense of the organisation which appointed the committee. I 
shall be the duty of the Council to see that such committee is appointed and sue! 
examination and report made and published at least once in every year. 

XXIII. The Agency shall establish a bureau of statistics and information, which 
shall carefully collect and publish facts, relating to the business of producing, refining, 
marketing and the consumption of oil. The rooms of the bureau shall at all times 
be open to the members of the Petroleum Producers' Association, and the Agency 
shall hold itself open for daily communications by telegraph with local associations. 



[340] 



NUMBER 17 (See page 123) 

CONTRACT BETWEEN PETROLEUM PRODUCERS' ASSOCIATION 
AND PETROLEUM REFINERS' ASSOCIATION 

[From the Oil City Derrick.] 

The contract between the producers and refiners read as follows : 

Whereas, The necessities of trade call for co-operation between the producers and 
refiners of oil, for purposes of mutual protection : 

Therefore, We, the undersigned, representing the Petroleum Producers' Associa- 
tion and the Petroleum Refiners' Association, hereby enter into the following articles 
of agreement, which stipulate as follows : 

First. — Each of the two associations hereby agrees to appoint a representative com- 
mittee, which committee shall meet together weekly, or as often as may be necessary, 
and at such places as they may determine. 

It shall be the duty of these committees (so far as in their power lies) to see that 
the provisions of this agreement are executed in good faith, and to discharge such 
duties as are devolved upon them by this agreement, and in general (within the limita- 
tion of their authority) to act for the mutual advantage of the trade, whose interests 
it is the purpose of this agreement to secure. 

Second. — The Producers' Association shall appoint a comptroller, who shall have 

the right to examine the books of the Refiners' Association, and its daily reports so 

Ifar as they relate to the purchase, sale, and shipments of crude and refined oil, and 

Jwho, together with the auditor of the Refiners' Association, shall make joint reports 

[daily to both associations. 

The Refiners' Association shall appoint a comptroller, who shall have the right 
[to examine the books of the Producers' Association and its agencies, and their daily 
ireports, so far as they relate to the purchase, sale, and shipments of crude and refined 
toil, and who, together with the secretary of the Producers' Association, shall make 
joint reports daily to both associations of all sales and shipments. 

Third. — Each association agrees that it will keep accurate books of account, which 
shall show all purchases, sales, and shipments of crude and refined oil, which shall 
also be open at all reasonable hours to the inspection and examination of the authorised 
agents of e?ch association, as hereinbefore provided. 

[341] 



THE HISTORY OF THE STANDARD OIL COMPANY 

Fourth. — The Refiners' Association agrees to admit all existing refiners to member j 
ship, and to a participation in the future benefits of the association on equal term 
with present members, and the Producers' Association agrees to allow all producer: 
to join its association on the same terms with the present members. 

Fifth. — The Producers' Association agrees to sell (through its regular appointee: 
agencies) crude oil exclusively to the Refiners' Association and its members, and thi! 
Refiners' Association and its members agree to purchase crude oil exclusively of tht 
Producers' Association or its appointed agents. 

Sixth. — The Producers' Association agrees that all producers enjoying the benefit! 
of this contract shall be required to bind themselves to sell their oil exclusively through 
the Producers' Association. 

Seventh. — The Refiners' Association and its members agree that they will not unti 
after sixty (60) days from the date of this contract sell any portion of the crude 01 
refined oil now held by them, except so far as they shall have previously purchased 
the equivalent of crude oil to take the place of the oil so sold. 

They further agree to buy from the Producers' Association daily such quantities oi 
crude oil as the markets of the world may take of them, the same to be determinec 
from time to time by the representative committees herein provided for. 

Eighth. — The price of crude oil so purchased and sold to be conditionally five; 
dollars per barrel of forty-two gallons each, at "common points," payment to b< 
made as follows: 

When refined oil is sold in New York at twenty-six cents per gallon, no additiona j 
amount is to be paid; but for every one cent per gallon of advance in the averagtj 
price of sales of refined oil in New York, twenty-five cents per barrel shall be added 
to the price of so much crude oil as shall be the equivalent of refined oil sold at suchl 
advance until the price reaches five dollars per barrel. A proportionate addition to the 
average price of crude oil shall be paid for each fraction of one cent per gallonj 
increase in the average price of sales of refined oil at New York, by members ol 
the Refiners' Association. 

The price of refined oil in New York and of crude oil at common points to be 
adjusted by the representative committee herein provided to be appointed. 

Ninth. — The representative committees may at any time, when it may be necessary; 
to do so, reduce the prices of crude and refined oils below the minimum or advance! 
them above the maximum prices above named, the increase and reduction in price 
and the cash payments on crude oil to be determined by said committees. 

Tenth. — Settlements to be made to the end of each calendar month and balances 
to be paid not later than the fifth of the succeeding month. 

Eleventh. — The profits on all crude oil sold for export by members of the Refiners' 
Association shall be credited to the Producers' Association in the next succeeding 
regular monthly settlement after delivery of said oil. 

[342] 



APPENDIX, NUMBER XVII 

Twelfth. — Either association may discontinue this agreement at any time by giving 
to the president of the other association ten (10) days' notice in writing of its purpose 
to do so. 

Thirteenth. — This agreement to remain in full force and effect for and during the 
term of five years from this date, unless sooner terminated in the manner provided 
in section twelve (12) of this agreement. 

Fourteenth. — Amendments and alterations may be made at any time by the repre- 
sentative committees, subject to the approval of the respective associations. 

In testimony whereof, the Petroleum Producers' Association, by its executive com- 
mittee, and the Petroleum Refiners' Association, by its president and secretary, have 
hereunto set their hands this nineteenth day of December, a.d. 1872, in the City 
of New York. 

Petroleum Producers' Association, by C. V. Culver, A. H. Bronson, Samuel 
Q. Brown, William Parker, B. B. Campbell, Executive Committee. 

Petroleum Refiners' Association, by John D. Rockefeller, President. 



[343] 



NUMBER 1 8 (See page 132) 



TESTIMONY OF GEORGE R. BLANCHARD ON REBATES GRANTED 
BY THE ERIE RAILROAD 

[Report of the Special Committee on Railroads, New York Assembly, 1879. Volume 
III, pages 3393-3395] 

October 1, 1872, when I first became general freight agent of the Erie Railroad, 
no oil was produced in the Bradford District, and all petroleum then transported 
by the Erie Railway eastward came from the Atlantic and Great Western Rail- 
road. At that time, Adnah Neyhart, of Tidioute, Pennsylvania, represented by 
W. T. Scheide, afterwards by H. C. Ohlen at New York, shipped small quanti- 
ties of refined oil, for which he received a rebate of over $7,000 on his shipments 
for the prior month, to wit, September, 1872. ... I looked for the reasons, and 
found the agreement next prior to that time as to shipments and rates was the 
one already in evidence between producers, shippers, refiners and railroad companies, 
dated March 25, 1872; I asked why that contract was not observed, and was then 
convinced in reply that the agreement of March 25 lasted less than two weeks, and 
that at that early date the Empire Line was receiving a large drawback or commission 
from the Pennsylvania Railroad, which was either being shared with its shippers or 
an additional amount was being allowed to them, besides that which the Empire Line 
itself received from the Pennsylvania system; and as the Empire Line also owned the 
Union Pipe Line, its shippers had advantages which our company and its shippers did 
not even jointly possess. At the close of that calendar year (1872), the entire petroleum 
traffic for the five months of the administration of President Watson, the former presi- 
dent of the South Improvement Company, to January 1, 1873, was but 265,853 
barrels, or but about 53,000 barrels per month; while the Pennsylvania Railroad 
was carrying about six times as much, or 300,000 barrels per month, and the New 
York Central was carrying the entire refined oil sent from Cleveland to New York. 
The representations then made to me also convinced the Atlantic and Great Western 
Company as to what our rivals were doing, and that railway company and our own 
decided to continue to pay the twenty-four cents per barrel drawback then being 
paid on the rate of $1.35 provided by this producers' agreement of March 25, 1872. 

It is therefore clear that one of the largest of the shippers, who signed that March 
agreement, did not feel that it bound him to pay the rates he had agreed to pay, and 

[344] 



APPENDIX, NUMBER XVIII 
he gave convincing reasons to believe that others, signers and parties to that agreement, 
did not pay them, and possessed equal or greater advantages byway of rival routes. 
Early in 1873 Mr. Scheide came to our line with Mr. Neyhart's crude business, under 
the circumstances Mr. Scheide has stated, but being yet without any shippers of 
refined oil, and believing that the Empire Line would pay a rebate on refined, as I 
now know from Mr. Scheide's testimony, they had paid Mr. Scheide on crude, I opened 
negotiations to increase our traffic, which resulted in an agreement, with the con- 
currence of the Atlantic and Great Western, as follows: 

Erie Railway Company, 
Office of Second Vice-President. 

New York, March 29, 1873. 

MEMORANDUM 

Between John D. Archbold, Mr. Bennett, and Mr. Porter, and Mr. Osborn, and 
self. Rate for March, 1873, to be 132! from Union. Rate thereafter to be 125 from 
same point as the maximum for 1873. If the common point rate is made from 
Titusville at any time in 1873, on bona fide shipments, Erie and Atlantic and Great 
Western will make same rate from same date. With this rate the refiners agree to give 
us their entire product to New York for the year, and the preference always at same 
rate as actual shipment by other lines. 

(Signed) John D. Archbold. 
G. R. Blanchard. 

This Mr. Bennett was also one of the signers to the agreement of March 25, as a 
refiner, and from these gentlemen I also learned at that time that this producers' agree- 
ment was exploded by the action of the Producers' Union before that time. 

Notwithstanding this agreement of March 29, 1873, with its reduced rates, its 
signers left us in November, 1873, and gave the Empire Line their entire shipments; 
and we were then left with but one small shipper of refined oil, Mr. G. Heye, whose 
consignments were small, and to retain even this small business, against similar solici- 
tations by our rivals we were compelled to make his rate $1.10 in November, 1873, 
instead of $1.50, as provided by this producers' agreement. 

These facts effectually refute the testimony of Mr. Patterson that the agreement 
of March 25 continued for two years, or any other period beyond three weeks, at 
the rates it stipulated, and show that at least two of its signers did not *feel bound 
to pay the rates it named, and that they and others by other lines endeavoured im- 
mediately after it was signed to obtain, and did secure reduced rates, as usual before its 
execution and peddled their oil among different railroads wherever they could secure 
an advantage, however small, over each other or the railroads. 

[345] 



NUMBER 19 (See page 133) 



TESTIMONY OF W. T. SCHEIDE 

[Report of the Special Committee on Railroads, New York Assembly, 1879. Volume 
III, pages 2774-2777.] 

Q. Why were you shipping over the Pennsylvania road and not over the Erie ? 

A. For the reason that the Pennsylvania was most eligibly situated for our purposes. 

Q. How did you come, then, to ship over the Erie at all ? 

A . We came to ship over the Erie because of what we considered very bad treat- 
ment on the part of the Pennsylvania Railroad. 

Q. What was that bad treatment that you received at the hands of the Pennsylvania 
road ? 

A. It consisted, principally, in a discrimination against us in furnishing us with 
cars. 

Q. They refused you transportation ? 

A. Yes, sir. 

Q. Were they refusing you transportation in the interest of the combination ? 

A. In the interest of a peculiar idea that they had, that all shippers should be placed 
upon the same basis. 

Q. And in consequence of that peculiar idea, they gave to other shippers trans- 
portation and did not give it to you ? 

A. Yes, sir. 

Q. And that was the practical way in which that corporation carried out that idea ? 

A. Yes, sir; you will allow me to explain, please ? 

Q. Yes; go on. 

A. The oil business differs from other business in this, that it is a daily crop; there 
is a certain amount of oil produced that has to be shipped every day; the consumption, 
however, is not equal to the daily production of our trade; the consumption varies 
and the demand varies; the consequence is that there are seasons of the year when a 
man engaged in shipping oil ships oil really at a loss because there is no demand for it, 
and there are other seasons when there is a large profit; now the Pennsylvania Railroad 
always insisted upon having a large number of shippers; this large number of shippers 

[346] 



APPENDIX, NUMBER XIX 

would ship only when there was profit, and when there was no profit somebody else 
had to ship; we had been their shipper for a number of years. 

Q. When you speak of their shipper— their leading shipper, do you mean ? 

A. Yes, sir; we did their business between Philadelphia and Baltimore and New 
York. 

Q. Were you their evener, so to speak ? 

A. We did not have any eveners in those days. 

Q. Did you practically stand in the position of an evener ? 

A . No, sir; we were simply their shipper of crude oil. 

Q. When you speak of their "shipper," in the singular, do you mean that you were 
their sole shipper, as you subsequently became on the Erie ? 

A. I mean we had better rates of freight than anybody else could have obtained 
over the Pennsylvania Railroad at that time. 

Q. And therefore monopolised the business; go on ? 

A. And the consequence is that in consequence of this change in the demand that 
when there comes a season that there is a little money in it, the Pennsylvania Railroad 
would encourage these numerous small shippers who would come in and they would 
pro-rate cars with them; they would only allow us to put in a requisition for a certain 
number of cars and they would allow anybody else, an entire stranger, a man who 
never shipped any before, to put in an equal requisition, and they would pro-rate with 
him, and the consequence was in the paying business we were out and in the unpay- 
ing business we were in. 

Q. And you left it ? 

A. Yes, sir. 

Q. Because you could not get rates better than other people ? 

A. No, sir; because we could not stand it; because we were losing money. 

Q. On the same basis that other people were ? 

A. No, sir; other people were not shipping except when there was a profit. 

Q. Why did you ship when there was not a profit ? 

A. Because that was our business; we were shippers of petroleum. 

By the Chairman. 

Q. I don't understand why you were obliged to ship at a loss ? 

A. That is the reason why we left the Pennsylvania Railroad. 

Q. I don't understand why you were obliged to ship at a loss ? 

A. We were in the petroleum business and shippers of petroleum, and we had 
contracts; in order to keep the cars running it was necessary for us to make a contract 
for one, two, three, five, or six months ahead. 

By Mr. Sterne. 

Q. Isn't it true that upon the basis of your having better rates than anybody else, 
you proceeded to make contracts to extend your business ? 

[347] 



THE HISTORY OF THE STANDARD OIL COMPANY 

A. Yes, sir. 

Q. With the Pennsylvania road ? 

A. Yes, sir. 

Q. And that the moment that you were placed in the position of having 

A. No transportation. 

Q. No transportation equal to your expectations, with your special rates ? 

A. I had to buy oil in New York. 

Q. That was the real fact ? 

A. Yes, sir. 

Q. The business was based upon the rate of transportation ? 

By the Chairman. 

Q. Why did you have to buy oil in New York ? 

A . To fill my contract. 

Mr. Sterne. — He had made his contract upon the basis of his special rate. 

The Witness. — And there was a certain supply of transportation which was given 
to me. 

By Mr. Sterne. 

Q. Practically an exclusive supply of transportation you had at one time over the 
Pennsylvania road, hadn't you ? 

A. Yes, sir. 

Q. And when they changed their policy in that respect and gave other people trans- 
portation, you could not fill the orders upon the basis of which you had made your 
contracts ? 

A. You will excuse me; this would seem as though this was a sudden arrange- 
ment; it was not; it lasted three or four years. 

Q. You had reason to suppose that it would last, had you not ? 

A. This policy of theirs ? 

Q. This policy. 

A. Yes, sir. 

Q. That drove you on the Erie ? 

A. Yes, sir. 



[348] 



NUMBER 20 (See page 133) 

STATEMENT OF AMOUNTS PAID FOR OVERCHARGES AND RE- 
BATES ON OIL DURING THE YEAR 1873 BY THE NEW 
YORK, LAKE ERIE AND WESTERN RAILROAD 

[Report of the Special Committee on Railroads, New York Assembly, 1879. Volume 
V, page 275 of Exhibits.] 

Nami. Erie pro. 

A. Neyhart £188,127.78 

Gust. Heye. 7,235.31 

J. J. Vandergrift 929.1 1 

Durant and Company H5-95 

Dutilk and Company 815.95 

S. D. Karns 7,089.69 

Standard Oil Company 469.1 1 

H. B. Everest 6.66 

Lyman and Williams 1344 

J. H. Willever 32.98 

L. Van Duzer 3.50 

H. Roach and Son .29 

L. Y. Wiggins and Brother 24.1 1 

P. A. Stebbins, Jr 4.53 

C. P. Prince and Company 2.69 

E. L. Houghton and Company 45*24 

McKirgan and Company 2.70 

Marks and Bean 45^2 

McManagle and Rogers 18.27 

Theodore Merritt 4-5^ 

W. F. Smith 3-86 

Vacuum Oil Company 8.80 

Vandusen Brothers 38.88 

Woodbury, Morse and Company 5-4° 

Ward, Leonard and Company 88.06 

Young and Borden 7-97 

Total £205,1 70.66 



[349] 



NUMBER 21 (See page 135) 



AGREEMENT OF 1874 BETWEEN THE ERIE RAILROAD SYSTEM 
AND THE STANDARD OIL COMPANY 

[Report of the Special Committee on Railroads, New York Assembly, 1879. Volume 
III, pages 3398-3402.] 

Agreement concluded this seventeenth day of April, a.d. 1874, by and between 
the Erie Railway Company and the Atlantic and Great Western Railroad Company, 
parties of the first part, and the Standard Oil Company, of Cleveland, Ohio, party of 
the second part, witnesseth: 

First. — The parties of the first part (Erie Railway Company and the Atlantic and 
Great Western Railroad Company) agree to furnish a sufficient number of good and 
suitable cars for the purpose of transporting petroleum and its products from the 
refineries now owned by the party of the second part (Standard Oil Company), at 
Cleveland, Ohio, and Oil City, Pennsylvania, and any others they may hereafter con- 
trol or own, to Weehawken Oil Yards, in New Jersey. 

Second. — The parties of the first part agree to transport said products of said re- 
fineries, and deliver the same in cars (if destined for the New York market) at and 
upon the side tracks connected with said Weehawken Oil Yards, in good order and 
condition, except as provided for in Article Four (4), and do all switching of cars at 
said oil yards necessary to the prompt and rapid discharge and handling of cars em- 
ployed in said business. They also agree to haul said cars (whenever practicable) in 
full trains over their respective roads, with promptness and uniformity of movement, 
and accept compensation therefor as hereinafter provided. 

Third. — Rates of freight on all said products to be made from time to time between 
J. H. Devereux, president of the Atlantic and Great Western Railroad Company, 
and the Standard Oil Company; the same to be to the satisfaction of the said J. H. 
Devereux, president; to be, however, no higher than is paid by the competitors of 
the said Standard Oil Company, from competing Western refineries to New York 
by all rail lines — each of said railway companies accepting its pro rata proportion 
of the through rate thus made. 

Fourth. — The party of the second part agrees not to ship more than .fifty (50) per 
cent, of the product of its said refineries by any other line or lines Eastward, to be 

[350] 



APPENDIX, NUMBER XXI 

shown by monthly statements verified by its president and secretary. It also agrees 
to assume all risks and losses of its property by fire when in the charge or custody 
of the parties of the first part, whether said property is being moved in trains or stored, 
or lying at any station between place of shipment and destination (both included). 
It further agrees to assume all losses from natural leakage or breakage, except the 
same is caused by collisions or the wrecking of cars by unavoidable accidents. It 
also agrees, at its own cost, to safely load at places of shipment all of said products, 
and unload the same when delivered at the said Weehawken Oil Yards, and furnish 
said products for shipment with as great regularity as possible. 

Fifth. — In the event of unavoidable detention, occasioned by the elements, or by 
strikes of employees of the parties of the first part, or either of them, whereby said 
first parties are unable (for the time being) to fulfill their covenants under this agree- 
ment, then it shall be the duty of said first parties to immediately notify the second 
party of such casualty or strikes, and such casualty or strike shall be considered good 
and sufficient cause for delay in the execution (for the time being) of the provisions 
of this agreement. And said first parties, and each of them, shall be saved from all 
obligation for the fulfillment of this agreement during the period of such detention, 
anything in this contract to the contrary notwithstanding. It shall be the duty of said 
first parties to proceed forthwith to put themselves in position to resume their obliga- 
tions under this agreement, giving notice at the earliest possible moment to the second 
party of their ability to resume. 

Sixth. — The Erie Railway Company for itself hereby stipulates and agrees to and 
with the second party, that on or before the first day of May, a.d. 1874, it will give 
full and complete possession of the property known as the Weehawken Oil Yards, in 
New Jersey, together with all buildings, erections, docks and appurtenances thereunto, 
belonging unto the second party to have and to hold, with all revenues derived there- 
from, from and after the said first day of May, a.d. 1874, or until the expiration of 
this agreement, as otherwise herein provided. The Erie Railway Company further 
agrees, at its own cost, on or before the first day of May, a.d. 1874, to put said buildings, 
erections and appurtenances in good repair; after which said second party shall 
maintain the same in like good order, and to do all dredging required to provide and 
preserve the requisite depth of water. 

Seventh. — In consideration of the possession of said Weehawken Oil Yards, the 
second party hereby agrees to and with the Erie Railway Company as follows: to wit: 
To pay weekly to said Erie Railway Company the sum of five (5) cents on each and 
every barrel (of 45 gallons) of crude oil, and the same sum on each and every barrel 
(not to exceed 46 to 48 gallons) of the products of petroleum passing through or 
into the aforesaid yards; the rate of five (5) cents to be absolute on all said refined 
products, but subject to rateable reductions on crude oil, in case the terminal charges 
on crude oil are reduced, taking present schedule of rates thereon (adopted Novem- 

[351] 



THE HISTORY OF THE STANDARD OIL COMPANY 

ber, 1872), a copy whereof is hereto annexed, as the standard; the Erie Railway 
Company retaining the right to reduce said schedule of rates on crude, to meet com- 
petition; the second party further agrees to conduct said warehouse business in the 
name of the Erie Railway Company, at its own cost and expense, to assume such risks 
on the oil, while in its possession, as the Erie Railway Company, or the Atlantic and 
Great Western Railroad Company would be responsible for to forwarders, consignees, 
or owners after its arrival and delivery in cars at yards; to make the charges uniform 
to all parties who use the yards, or for whom services are performed therein, and always 
as low as any other oil yard affording proper facilities for the transfer, storage prep- 
aration and shipment of the oil at the terminus of any railway, or other line competing 
with the Erie Railway, at or adjacent to the port of New York, and generally so to 
manage the premises as to give all patrons of the road fair and equal facilities for their 
oil business at uniform cost, to retain and pay the present superintendent and other 
officers and employees of the yard, so long as their duties are satisfactorily performed, 
and from time to time to appoint such other officers as shall not be objected to by 
the Erie Railway Company, to maintain the buildings, erections, and mechanical 
appliances of the premises in as good order as when possession is given, natural wear 
and unavoidable (by due diligence) damages from the elements excepted, to make 
no rules or regulations discriminating against any other shipper or shippers, or receivers. 
It is understood and agreed that the consent of the Erie Railway Company is to be 
obtained before any refined or crude oil shall be received at the Weehawken Oil Yards, 
which arrives from the west via any transportation line competing with the Erie Rail- 
way. 

Eighth. — It is further agreed that the second party shall assume the charge and 
collection of freights and charges — accounts to be rendered and adjusted, and paid 
weekly — Erie way-bills to govern quantities received, except when the same are shown 
to be incorrect, or loss in transit (except from natural leakage) has occurred through 
fault or neglect of said railway companies, or either of them. Any new fixtures which 
the party of the second part may add to the property shall be and remain its property, 
and they may remove the same at their cost, at the expiration of this agreement, unless 
mutually satisfactory terms of purchase and sale can be agreed to. 

Ninth. — This agreement to take effect and be binding upon the parties hereto, on 
the first day of May, a.d. 1874, and to continue until the first day of May, a.d. 1877, 
provided, however, that either party may terminate the same upon giving notice in 
writing to the other party six (6) months in advance of its intention so to terminate; 
and provided further, that within thirty days after the election of a new board of 
directors, of either the Erie or Atlantic and Great Western Railway Companies, the 
second party shall have the right to terminate this agreement, by giving notice in 
writing to the other party one month in advance of its intention so to terminate, and 
upon the expiration of either of said periods, this agreement shall be then at an end. 

[352] 



APPENDIX, NUMBER XXI 

Tenth. — In consideration of the premises, the party of the second part agrees to 
pay to the Erie Railway Company, weekly, the sums which such weekly settlement 
shall show to be due to the said first parties, as freight on its property delivered at 
the Weehawken Oil Yards. 

Eleventh. — It is hereby expressly understood and agreed that neither of the said 
parties of the first part shall be liable for the acts or defaults of the other; and that 
each shall only be liable for its own acts and defaults, on and over its own line and 
premises. 

In Witness Whereof ", the parties hereto have affixed their hands, this twentieth 
day of April, 1874. 

(Signed) The Erie Railway Company, 

By G. R. Blanchard, Second Vice-President. 

(Signed) The Atlantic and Great Western Railroad Company, 

By J. H. Devereux, President. 

(Signed) Standard Oil Company, 

By William Rockefeller, Vice-PresidenU 



[353] 



NUMBER 22 (See page 139) 



AGREEMENT OF 1874 BETWEEN THE RAILROADS AND 

PIPE-LINES 

[Report of the Special Committee on Railroads, New York Assembly, 1879. Volume 
III, pages 343I-3437-] 

Memorandum of agreement entered into this fourth day of September a.d. 1874, 
by and between the following parties, viz. : 

First. — J. J. Vandergrift, G. V. Forman, and John Pitcairn, Jr., partners them- 
selves, and agreeing that they have authority to represent all other partners in the 
association trading under the name of the United Pipe Lines, and holding themselves 
individually responsible to the other parties hereto that they have such authority. 

Second. — The Union Pipe Company by Charles P. Hatch, manager. 

Third. — The Antwerp Pipe Company and the Oil City Pipe Company, each being 
corporations under the laws of the State of Pennsylvania. 

Fourth. — The American Transfer Company, a corporation under the laws of the 
State of Pennsylvania. 

Fifth. — The Grant Pipe Company, a corporation under the laws of the State of 
Pennsylvania. 

Sixth. — The Karns Pipe Line Company, a corporation under the laws of the State 
of Pennsylvania. 

Seventh. — The Relief Pipe Line Company, a corporation under the laws of the State 
of Pennsylvania. 

Eighth. — The Pennsylvania Transportation Company, a corporation under the 
laws of the State of Pennsylvania. 

Ninth. — J. J. Vandergrift, G. V. Forman, and John Pitcairn, Jr., trading under 
the name of Vandergrift, Forman and Company, and owning and representing the 
Milton and Sandy Pipe Lines. 

Whereas, The pipe lines owned and controlled by the parties hereto have a joint 
capacity for transportation more than twice as great as the total volume of petroleum 
produced in the district traversed by said lines; and whereas, the separate and dis- 
cordant relations now prevailing among the parties hereto, lead to a needless mul- 
tiplication of extensions, branches, and other matters involving heavy cost, which 

[354] 



APPENDIX, NUMBER XXII 

ultimately becomes in some shape a charge upon the business transported, and 
also leads to the offering of open or secret inducements of an illegitimate nature, 
such as rebates, special rates, selling oil for less than its cost and full pipage rates, 
and in other ways hereby to attract an under share of traffic to the respective lines 
represented herein; and 

Whereas, it is believed to be desirable both for the interests of the parties hereto 
and those of the public whom they serve, that all needless expenditure and all illegiti- 
mate inducements should cease; now, 

Therefore, for those purposes and for other valuable considerations mutually moving 
the parties hereto, they do each respectively agree with each other, as follows: 

First. — The parties hereto do not by these presents create in any respect a partner- 
ship with each other, but each party is to be wholly and solely responsible for all of 
its own acts in the conduct of its business for its certificates, receipts, and collection 
of its charges, its expenses, shortages, maintenance, and management of its property, 
and of its engagements and obligations of every sort. 

Second. — The pipe-lines which are covered by this agreement are those which are 
or may be owned by any of the parties hereto, and which are situated south of Oil 
City, and which terminate at any of the following points, viz. ■ points on the Frank- 
lin branch of the Atlantic and Great Western Railway, points on the Jamestown and 
Franklin branch of the Lake Shore and Michigan Southern Railway, points on the 
Alleghany Valley, between or at Oil City and Pittsburg, points on the Schenango 
and Alleghany Railroad and points on the Butler branch railroad, excepting two 
small pipe lines, one owned by F. Prentice and Company, running from Mount 
Hope to Foster, and one owned by Vandergrift, Forman and Company, called the 
Franklin Pipe Line, running from the heavy oil district to Franklin, Pennsylvania. 

Third. — Each party hereto shall retain eight (8) cents per each forty-two (42) 
gallons remaining after deduction of allowances for shortage and sediment, on all 
af the oil it actually pumps; also, all allowances made it on such oil to meet shrinkage 
and sediment, and also all of its other receipts of every description, except as stated 
;n the next article. 

Fourth. — Each party shall account monthly to the executive committee herein- 
after provided for, at the rate of twenty-two (22) cents for each forty-two (42) gallons 
jf petroleum (after deducting shrinkage allowances) received by it for transportation 
during such months; which twenty-two (22) cents shall be considered by said com- 
mittee as a common fund to be cleared and divided on the basis hereinafter designated. 

Fifth. — The executive committee shall consist of one representative from each 
)f the parties hereto. 

Each representative to be appointed by the party he represents to be changeable 
"rom time to time by such party, at its pleasure; the said committee shall faithfully 
execute such provisions of this agreement as are by its terms confided to them. 

[355] 



THE HISTORY OF THE STANDARD OIL COMPANY 

Their action must, in all cases, be unanimous before it shall be binding upon any 
party hereto. 

They shall keep a record of their proceedings, to which each of the members shall 
have free access, and whenever desired by any, a full transcript, or any part thereof. 

The members of said committee shall, until changed, as hereinbefore provided, 
be as follows : Charles P. Hatch, representing the Union Pipe Company; A. M. Hughes, 
representing the Antwerp Pipe Company and the Oil City Pipe Company; D. O'Day, 
representing the American Transfer Company; R. B. Allen, representing the Grant 
Pipe Company; S. D. Karns, representing the Karns Pipe Line Company; F. Prentice, 
representing the Relief Pipe Line Company; H. Harley, representing the Pennsylvania 
Transportation Company; E. Hopkins, representing the United Pipe Lines, Milton 
Pipe Line, and the Sandy Pipe Lines. 

Sixth. — Each party hereto shall furnish to the executive committee, on or before 
the fifth of each month, a report of its business for the month next preceding, duly 
verified by the affidavit of its proper officer or agent; and the amounts found due by 
the executive committee from any of the parties hereto shall be paid by them through 
the executive committee to the parties to whom they may be due, on or before the 
tenth of the month in which the report is made. 

Seventh. — The committee shall prescribe the form of said return, and shall act 
as a clearing house thereof. They shall have power to verify the same by inspection 
of books and records, and shall make to each party hereto, on or before the tenth day 
of each month, a full exhibit of the results of the returns and clearings for the next 
preceding month. 

Eighth.— The committee shall prescribe and enforce uniform rates and conditions 
for the reception, storage, and transportation of oil, including substantially uniform 
wordings of certificates and gaugers' tickets; uniform conditions for the accepting 
of tanks owned by other parties; uniform conditions as to responsibility for losses 
through unavoidable causes, such as lightning; and uniform rates of allowances for 
shrinkages. Until changed by said committee, the rates for transportation shall be as 
follows : 

For each forty-two gallons remaining after deducting allowance for shrinkage 
and sediment, viz., from all points which, by any pipe-lines represented herein, which 
terminate at Oil City or on the various railways as hereinbefore described, thirty 
(30) cents; excepting, First, on oil reached by pipes terminating on the Alleghany 
Valley Railroad south of Oil City, and north of Parker City. Second, on oil from 
the west side of the Alleghany River, not pumped from north of Bear Creek. Third, 
on oil pumped from Sheakley to Monterey by the United Lines, and from south of 
Bear Creek, and north of Sheakley district by the Union and Karns lines, all of which 
shall be twenty-five (25) cents. But the rates on oil covered by the third exception 
shall be made thirty (30) cents on or before January 1, 1875. The only remaining 

[356] 



APPENDIX, NUMBER XXII 

exceptions to these rates on such private contracts at different figures, as each party 
may now have, a list of which together with any special conditions appertaining thereto 
shall be filed with the executive committee on or before September i, 1874; no new 
contracts for transportation or storage or tankage shall be made by any party whatever, 
except at the regular rates as herein fixed, or as shall be, from time to time, fixed by 
the executive comi ittee. All rates less than thirty (30) cents may be at any time 
advanced to thirty (30) cents by the party subject thereto. 

Ninth. — The committee shall adopt all proper and practicable measures to secure 
the transportation by each line of a share of the total oil pumped each month by all 
the lines, equal in percentage to the share of the common fund allotted to each herein, 
having reference to the facilities of each party for doing the work; they shall assign 
to each party, and as early in each case as possible, such share of the duty of making 
extensions and connections with wells as most legitimately appertains to it, or as may 
be required by the well owner, or by the contracts of each party; but constant reference 
shall be had to maintaining for each party its share as heretofore described of the 
total oil to be transported, and to distributing the total cost involved as nearly as 
practicable in the proportion of the common fund assigned to each, and no other party 
shall make such improvements except by consent of said committee. The committee 
shall arrange with a chief gauger and the needful assistants (all of whom shall be 
under oath to act honestly and impartially), to gauge from time to time all tanks 
with which the lines of the parties hereto are or may be connected, or car tanks which 
they may load; and may collect the expense thereof from the parties hereto in pro- 
portion to their respective shares in the common fund; and may also assess upon 
the trade such reasonable charge for car gauging, or may wholly waive such charge 
as they may deem judicious. The committee shall have general power to inaugurate 
and carry into effect any other features than those especially named herein which 
will not be inconsistent with and which will in their judgment more effectually accom- 
plish the purposes and spirit of the agreement. 

Tenth. — The division of the common fund shall be as follows: 

The United Pipe Lines, twenty-nine and one-half (29^) per cent. 

The Union Pipe Company, twenty-five and one-half (25$) per cent. 

The Antwerp Pipe Company and Oil City Pipe Company, seven (7) per cent. 

The American Transfer Company, seven (7) per cent. 

The Grant Pipe Company, seven (7) per cent. 

The Karns Pipe Line Company, seven (7) per cent. 

The Relief Pipe Line Company, seven (7) per cent. 

The Pennsylvania Transportation Company, seven (7) per cent. 

The Sandy Pipe Line and Milton Pipe Line, three (3) per cent. 

Eleventh. — All parties hereto agree to faithfully carry out the spirit and purposes 

I of this agreement, and to do nothing between the date of its execution and the date 
[357] 



THE HISTORY OF THE STANDARD OIL COMPANY 

of its taking effect, inconsistent therewith, and it is mutually agreed that from the 
date of its taking effect until it is terminated, any violation thereof by any party will 
work an injury to the whole interest of not less than ten thousand (#10,000) dollars; 
and if any such violation shall not be fully rectified by the offending party within thirty 1 
(30) days after written notice shall have been given to the said offending party by the 
executive committee, through its secretary, upon a vote of all of said committee ex- 
cept the representative of the offending party, it is agreed that ten thousand ($io,ooo) 
dollars shall be the stipulated and liquidated damages for each and every such violation 
so unrectified, which damages shall be collected by the executive committee, and 
shall be divided among the other parties hereto in the same relative proportion as the 
common fund is divided. This contract shall take effect on the first day of October, 
a.d. 1874, and shall continue for two (2) years, and shall continue after the expira- 
tion of said two (2) years until after three (3) months' written notice shall have 
been given by either of the parties hereto, to the executive committee, through its 
secretary, of a wish to have it terminate, at the expiration of wheh notice it shall cease 
and determine. 

In Witness Whereof, the parties hereto, by their representatives, have affixed their 
signatures this fourth day of September, a.d. 1874. 

The United Pipe Lines: J. j. Vandergrift, George V. Forman, John Pitcairn, 
Jr., by George V. Forman, Attorney for themselves and others. 

The Sandy and Milton Lines: J. J. Vandergrift, George V. Forman, John 
Pitcairn, Jr., by George V. Forman, Attorney. 

For the Relief Pipe Line Company: F. Prentice, President. 

For the American Transfer Company: Daniel O'Day, Superintendent. 

For the Union Pipe Line Company: Charles P. Hatch, Manager. 

For the Grant Pipe Company: R. B. Allen, President. 

For the Karns Pipe Line Company: S. D. Karns, President. 

For the Antwerp Pipe Company and the Oil City Pipe Company: E. C. Bradley, 

President. 

For the Pennsylvania Transportation Company : Henry Harley, President. 



[358] 



NUMBER 23 (See page 141) 



THE RUTTER CIRCULAR 

[Proceedings in Relation to Trusts, House of Representatives, 1888. Report Num- 
ber 31 12, page 363.] 

The New York Central and Hudson River Railway Company, 
General Freight Agent's Office, Grand Central Depot. 

New York, September 9, 1874. 
Dear Sir: Commencing October 1, 1874, the following rates on refined and crude 
oil shall govern all lines : 

The rates on refined oil from all refineries at Cleveland, Titusville and elsewhere 

in and adjacent to the Oil Region shall be as follows: 

Per Barrel. 

To Boston $2.10 

Philadelphia 1.85 

Baltimore 1.85 

New York 2.00 

Net rate on Albany fifteen per cent, less, from which shall be refunded the amount 
paid for the transportation of crude oil by rail from the mouth of the pipes to the 
said refineries, upon the basis of fourteen barrels of crude oil to the refineries for every 
ten barrels of refined oil forwarded by rail from them (the refineries) to the Eastern 
points named. 

Settlements of this drawback to be made on the refined oil forwarded during each 
month. 

No rebate on these rates will be paid on oil reaching refineries direct by pipes. 

On crude oil the rates from all initial points of rail shipments in the Oil Region 
shall be as follows: 

Per Barrel. 

To Boston $i-75 

New York , I.JO 

Philadelphia 1-5° 

Baltimore 1-5° 

Net rate on Albany fifteen per cent, less, from which shall be refunded twenty-two 
cents per barrel only on oil coming from pipes which maintain the agreed rates 
r pipage. 

[359] 



THE HISTORY OF THE STANDARD OIL COMPANY 

A barrel shall in all cases be computed at forty-five gallons. 

You will observe that under this system the rate is even and fair to all parties, pre- 
venting one locality taking advantage of its neighbour by reason of some alleged or 
real facility it may possess. 

Oil refiners and shippers have asked the roads from time to time to make all rates 
even, and they would be satisfied. This scheme does it, and we trust will work satis- 
factorily to all. 

Respectfully yours, 

J. H. Rutter, 

General Freight Agent. 



[360] 



NUMBER 24 (See page 148) 

STANDARD OIL COMPANY'S APPLICATION FOR INCREASE OF 
CAPITAL STOCK TO $3,500,000 IN 1875 

To the Secretary of the State of Ohio: 

The undersigned, being a majority of the board of directors of THE STANDARD 
OIL COM PA NT OF CLEVELAND, OHIO, do hereby certify that on the tenth 
day of March, a.d. 1875, at a special meeting of the stockholders of said company 
held at its office in Cleveland, Cuyahoga County, Ohio, by a vote then and there taken, 
all the stockholders of said company being present and voting therefor, it was resolved 
and agreed by each and all of them, that the capital stock of said company be increased 
the sum of One Million Dollars, thereby making the capital stock of said company 
Three Million Five Hundred Thousand Dollars, which action of the stockholders 
was as follows, to wit: 

Resolved, and it is agreed by each and all of us that the capital stock of this com- 
pany, viz.: THE STANDARD OIL COM PANT OF CLEVELAND, OHIO, 
be increased to the sum of Three Million Five Hundred Thousand Dollars, and it 
is also agreed and the proper officers of this company are hereby instructed to take 
the requisite steps to so increase said capital stock. 

John D. Rockefeller; S. V. Harkness; H. M. Flagler, Trustee; S. Andrews; 
J. D. Rockefeller, Agent;]. D. Rockefeller, Trustee; O. H. Payne; B. Brewster, 
by J. D. Rockefeller, his Attorney; T. P. Handy, by J. D. Rockefeller, his 
Attorney; O. B. Jennings, by J. D. Rockefeller, his Attorney; Wm. Rockefeller, 
iby J. D. Rockefeller, his Attorney; Jas. Stanley, by O. H. Payne, his Attorney; 
A. M. McGregor, by J. D. Rockefeller, his Attorney; W. C. Andrews; A. J. 
Pouch, by J. D. Rockefeller, his Attorney; F. A. Arter, by J. D. Rockefeller, 
bis Attorney; P. H. Watson, by H. M. Flagler, his Attorney; J. A. Bostwick, by 
J. D. Rockefeller, his Attorney; J. Huntington, by O. H. Payne, his Attorney; 
D. M. Harkness, by H. M. Flagler, his Attorney; Josiah Macy, by J. D. Rocke- 
1 feller, his Attorney; W. H. Macy, by J. D. Rockefeller, his Attorney; W. G. 
Wardwell, by H. M. Flagler, his Attorney; D. P. Eells, by J. D. Rockefeller, 
bis Attorney; S. F. Barger, by J. D. Rockefeller, his Attorney;^. H. Vanderbilt, 
[by J. D. Rockefeller, his Attorney; H. W. Payne, by O. H. Payne, his Attorney; 

[36l] 



THE HISTORY OF THE STANDARD OIL COMPANY 

J. J. Vandergrift, by O. H. Payne, his Attorney; John Pitcairn, Jr., by O. H. 
Payne, his Attorney; L. G. Harkness, by H. M. Flagler, his Attorney. 

And afterwards said meeting was duly adjourned. 

H. M. Flagler, 
Cleveland, March 10, 1875. Secretary. 

And we further certify that the whole amount of such increase of capital stock has 
been paid to said company in money, that no note, bill, bond, or other security has 
been taken for the same or any part thereof, and that the credit of the company has 
not been used directly or indirectly to raise funds to pay the same or any part thereof. 
In Witness Whereof, we hereunto set our names at Cleveland, this tenth day 
of March, a.d. 1875. 

John D. Rockefeller, 
Henry M. Flagler, 
Samuel Andrews, 
Oliver H. Payne, 
Stephen V. Harkness. 



[362] 



NUMBER 25 (See page 148) 

HENRY M. FLAGLER'S TESTIMONY ON THE UNION OF THE 
STANDARD OIL COMPANY WITH OUTSIDE REFINERS IN 1874 

[Proceedings in Relation to Trusts, House of Representatives, 1888. Report Number 
31 12, page 291 and page 770.] 

A. . . . The original Standard Oil Company was organised in the early part 
of 1870. The increased capacity and the acquisition of the Cleveland refineries was, 
as I remember it, in 1872. It remained at that until 1875 or 1876,* according to the 
best of my recollection. Then was consummated a negotiation which had been pending 
for some two years, perhaps, with certain parties in Pittsburg, Philadelphia and New 
York, by which a value was agreed upon, and their refinery property was purchased 
and the capital of the company was increased a still further sum of a million, and 
they were paid for these properties, and money which they contributed, in the stock 
of the Standard Oil Company of Ohio. 

By Mr. Gowen. 

Q. When did the Standard Oil Company of Ohio first enter into an alliance with 
other refineries ? 

A. If you mean, (by) an alliance, Mr. Gowen, I should say never. 

Q. I am only endeavouring to aid your friends in getting at what they want. Here, 
I notice, they propose to prove by you — I will give it in this way — that on account of 
the disastrous condition of the refining business, the Standard, on October 15, 1874, 
entered into an alliance with a number of Pittsburg refineries ? 

A. That is more correctly stated by saying that the Standard Oil Company pur- 
chased the refineries owned by the parties in Pittsburg. 

Q. Who were they? 

A. Lockhart, Frew and Company, I think was the company. Wait a moment. It 
was the Standard Oil Company of Pittsburg, it being a corporation, and Warden, 
Frew and Company, of Philadelphia, and, I should say, Charles Pratt and Company, 
of New York. 

Q. Any others? 

A. That is all. 

•It wai 1874. 

[363] 



THE HISTORY OF THE STANDARD OIL COMPANY 

Q. All those gentlemen, Warden, Frew and Company, and the Standard Oil Com- 
pany of Pittsburg, Charles Pratt and Company of New York, are now associated 
with you as parties interested in the present Oil Trust ? 

A. They are stockholders. The property formerly owned by them was at that 
time purchased by the Standard Oil Company. 

Q. When you speak of purchasing their interest, you do not exclude them from 
their interest ? They united with you and remained as your associates in the busi- 
ness ? 

A. If it was not from the fact that ours was a corporation, we might call it a co- 
partnership. 

Q. They becoming interested in yours, and you in theirs ? 

A. Yes, sir. 

Q. And you simply used your name to represent the joint ownership, as it was 
a corporation ? 

A. Yes, sir. 



[364] 



NUMBER 26 (See page 153) 

GEORGE H. BLANCHARD'S TESTIMONY ON THE BREAKING UP 
OF THE PIPE POOL OF 1874 

[Report of the Special Committee on Railroads, New York Assembly, 1879. Volume 
III, pages 3445-3447 and 3449~345i J 

The contract with the Standard Company of April 17, 1874, as I have said, con- 
tained nothing inconsistent with our obligations to the Pennsylvania and New York 
Central Railroads, and the New York Central, under their later contract, and our 
company, convinced the Pennsylvania Railroad of that fact during the discussions 
both as to rates and each and every other detail agreed to, but President Jewett thought 
it better to rely upon the arrangements between the railway companies alone, and 
decided to avail himself of the ninth clause of the agreement with the Standard Oil 
Company of April 17, 1874, which provided that either party might terminate it by 
six months' written notice, but that notice might be given by the Standard Company 
within thirty days after the election of a new board of directors of the Erie or Atlantic 
and Great Western Company. This trunk line oil pool of October 1 being in operation, 
President Jewett gave notice of the termination of the Standard agreement of April 
1, 1874, on October 31, 1874, which would have terminated in six months. It was 
the thirty-first of the following May, but an election having in the meantime taken 
place upon the Atlantic and Great Western Railroad, the Standard Oil Company gave 
the thirty days' notice it had the right to do on January 13, 1875, which, therefore, 
terminated the agreement upon February 13, 1875, about three months and a half 
before President Jewett 's notice could, under the contract, take effect. 

The trunk line agreement of October 1, 1874, continued in force, and pool settle- 
ments were made thereunder for but five months, namely, until the close of February, 
1875, during which time the Erie Company paid #31,019.05 and received #6,570.55. 

Notice of the abandonment of that contract was given by the Erie Company, April 
1, 1875, although no statements or moneys were exchanged for March, and dissatis- 
faction with its operations had been expressed by us prior to that time, the reasons 
therefor being as follows: 

The higher rates of the pipe pool had stimulated new pipe-lines, and the Hunter 
and Cummings Line and other small pipes had been completed, or did not maintain 

[365] 



THE HISTORY OF THE STANDARD OIL COMPANY 

the agreed rates of pipage. The Columbia Conduit Company had also been com- 
pleted to Pittsburg, in the interest of the Baltimore and Ohio Company, and either 
acting upon the then policy or advice of that company, or with a desire to be bought 
out, declined to charge equal rates of pipage or agree to any fixed rates, a fact which 
threatened the diversion of oil largely to Baltimore, the Baltimore and Ohio Railroad 
not being in the trunk line oil pool of October I, 1874, and publicly and frequently 
announcing its endeavour to divert the oil trade to Baltimore. 

We also believed that large drawbacks or commissions were paid by the Pennsyl- 
vania Railroad to the Empire Line in addition to those provided in our joint pool 
contract; and our belief has since been confirmed by later knowledge of the fact that 
the Pennsylvania Railroad paid to the Empire Line about 30 per cent., including 
the use of cars; and the mileage, being about ten (10) per cent, at current rates of 
car service, left the commission equal to about 20 per cent., an advantage not possessed 
by any other shipper or company over any of the northern lines. 

It was clear that, as the Empire Line added to its already large resources, not only 
this commission upon the oil business excepting Pittsburg, but the added profits upon 
its pipe-lines, that its combined operation and profit united to control an increasing 
share of the entire trade and put it in strong financial shape for a control which it 
subsequently entered upon to absorb also a large refining interest. 

As the northern trunk lines made no similar arrangements, allowances or commis- 
sions to any forwarder or receiver, and derived no profit from any pipe-lines, it was 
clearly unfair to concede them to the Empire Line, and the agreement which gave it 
these growing advantages was very properly annulled. 

We also desired the actual transportation of the oil rather than to receive money 
from others, as we had done during the pool, as their increased business might finally 
result in a demand for larger percentages if the pool continued. 

I directed careful examination of our records up to date of the abandonment of this 
oil pool contract; and upon the authority of General Freight Agent Vilas, state that 
the net rates charged to the Standard Company during this period to through points 
were uniform with the rates charged by our lines to other shippers, taking into account, 
as before stated, the transportation of the crude equivalent to their refineries. . . . 
The preliminary discussions and general conclusions relating to those (new) contracts 
were all with President Jewett, although many of their details were subsequently 
discussed and suggested by me; and the reasons influencing him to make them have 
been stated by him in his testimony; I was directed to carry them out, and have from 
time to time attended meetings at which the rates thereunder were advanced or reduced. 
I believe those contracts were not concluded until the latter part of April or early in 
May, and were then dated back to the disruption of the trunk line oil pool, in order 
to secure our guaranteed proportion of oil shipments from that earlier date and without 
interruption. The transportation contract continued to guarantee us 50 per cent. 

[366] 



APPENDIX, NUMBER XXVI 

of the business of the Standard Oil Company, which 50 per cent, should not be less 
than the percentage we had received in the year 1874 of the total arrivals at the seaboard; 
and at this time, for that reason, the Standard Oil Company had no transportation 
arrangements with the Pennsylvania Railroad, and this fact and guaranty induced 
us to disregard the question as to whether or not the Standard Company had similar 
or other contracts with the New York Central or its connections, our only interest 
in the question being as to whether rates were equal and if we received our guaranteed 
share of the oil. 

There was no understanding or agreement by the Erie Company to my knowledge 
that the New York Central Company or Pennsylvania Railroad, or either of them, 
had or had not similar or other contracts with the Standard Oil Company. 

They were shipping by the New York Central route, and we assumed from their 
large business, terminal arrangements, etc., that some defined understanding probably 
regulated such large interests, but we were not consulted as to the terms or conditions 
of its contracts with other companies if it had any, because we relied upon their responsi- 
ble guaranty to give us our proportion of the total arrivals of oil at the seaboard and 
at rates equal to those of other companies, as ample protection to our interests. 

At the time this transportation contract was made by the Erie Company, other 
considerations than relief from risks and the equalisation of the arrivals at the sea- 
board bore upon the contracts for an allowance of 10 per cent. It continued to be our 
belief, since fully confirmed by Mr. Cassatt's testimony, that other shippers via the 
Empire Line over the Pennsylvania Railroad had at least similar rates and arrange- 
ments, to which, on the part of the Erie Company, no objection was offered; it also 
continued to be the fact that the Empire Line continued to receive in addition to its 
probable pipe profits, the same or about the same, large commission as before, from 
the Pennsylvania Railroad, and it was believed by the officers of the Erie in making 
this contract with the Standard Company that the allowance to it of 10 per cent, was 
not much more than one-half the allowance then being made by the Pennsylvania 
Railroad to the Empire Line. 

In addition thereto, we secured the actual transportation of our full share of the 
oil, at the agreed rates, without delays or disputes in adjustments, or the preparation 
or exchange of the pool statements. 

It maintained the business to New York and provided against any increase to our 
rival railways or ports, no matter how the territory of oil production might shift or 
vary, and while under the trunk line pool we could not influence the various shippers 
to send them oil over our railway or to this city, unless their varying and dissimilar 
interests all agreed (as they did not), and no matter how much one company might 
be in deficit, the Standard Company is compelled to send it over our line. The loading 
and unloading, and taking the risks, were also important items to us as has before 
been detailed, and relieved us from a class of claims we had paid prior to that time. 

[367] 



THE HISTORY OF THE STANDARD OIL COMPANY 

It was also important to us that by this contract we were explicitly released from 
large losses when the great fire consumed the Weehawken docks in July, 1874. 

The ninth section of the contract has also been of much value to us. In the delivery 
of oil to vessels or exporters, the Standard Company assumes all the risks and expenses 
of delays to ships, and their demurrage, even if it be the fault of the railway by non- 
delivery, and I have known of cases where this amounted to a large sum. 

In 1877 when the general and extended railway strikes occurred, this clause also 
released us beyond doubt from large claims that might otherwise have been urged. 

The freight rates provided by the railway pool of October 1, 1874, were not changed 
until October 1, 1875; and my recollection is that it was not until the discussion upon 
that change that anything was definitely known by any of the trunk lines of the arrange- 
ments of the others with the Standard Oil Company. At that meeting the 10 per cent, 
reduction to be allowed the Standard was distinctly understood as due upon its ship- 
ments via all the trunk lines in consideration of the facts stated, and it then first came 
to my knowledge that Warden, Frew and Company, of Philadelphia, represented the 
Standard Oil Company, as Charles Pratt and Company represented their crude interests 
at New York via our line. 



[368] 



NUMBER 27 (Sec page 196) 

MR. FLAGLER'S EXPLANATION OF THE COMMISSION OF 10 PER 
CENT. ALLOWED THE STANDARD OIL COMPANY IN 1877 

[Proceedings in Relation to Trusts, House of Representatives, 1888. Report Number 
31 12, pages 774-775-] 

I would like the privilege of explaining about that 10 per cent, commission. The 
railroad companies, as perhaps Mr. Gowen will remember, he at that time having 
been head of the Reading Railroad, tried and did agree among themselves for divisions 
of the oil business. I know that they agreed among themselves that a certain per- 
centage of it the New York Central should take; a certain other percentage the Erie 
should take; a certain other percentage the Pennsylvania Railroad should take; and a 
certain other percentage the Baltimore and Ohio should take. We were only anxious 
:hat uniform rates should be maintained by these roads. All these roads, and each 
me of the roads, found it impossible to secure the divisions of the business as they 
lad agreed upon. Notwithstanding, we co-operated with them, for we were heartily in 
*avour of its being done and were only seeking for a uniformity of rates by the different 
oads. But as any gentleman connected with railroad interests well knows there 
ilways is that desire to get more than belongs to the line. That desire kept cropping 
>ut in the practical shape of cutting under rates for the sake of getting a little more, 
:ach road feeling that it was not getting enough to insure it its percentage. The 
Itandard Oil Company at that time owned a very large percentage of the entire oil 
raffic. It was possible for it to do a service for the roads that the roads were unable 
o do for themselves. That service, however, involved a good many hardships. 

The practical working of it was this, that at the end of each month after the arrange- 
nent had been made, each of these railroad companies, they first having agreed how 
hey would divide among themselves and not seek to go beyond that certain percentage 
-at the end of each month each railroad company sent to us a statement of the number 
>f barrels of oil they had transported during the month. It was incumbent upon us 
luring the succeeding month to ship over the road or roads which had received less 
han its percentage an amount during that following month sufficient to bring up 
he deficit of the previous month. Undertaking to do that meant, as I well knew at 
he time, a responsibility imposed upon us, and an obligation to run refineries at certain 

[369] 



THE HISTORY OF THE STANDARD OIL COMPANY 

localities which perhaps at the time it was unprofitable for us to run. It meant a stead] I 
continuance of a large volume of business at periods of time when it might not b< 
profitable to run them; and if the gentlemen of the committee will bear with me jus 
a moment you will see the difficulties. It was not only the three trunk lines — the Ne*| 
York Central, terminating at Buffalo, the Pennsylvania, terminating at Pittsburg, ancl 
the Baltimore and Ohio, I don't know where — but there came in their Western connec-j 
tions. I remember well the New York Central had two; the Lake Shore was its connec- 
tion west of Buffalo to Cleveland, and the Dunkirk and Allegheny Valley was its western 
division to the Oil Region. It was not an easy matter, for we had not only to regard 
the percentage delivered at the seaboard, but we had to try to keep the Lake Shore! 
satisfied with its proportion, the New York Central's proportion, and the Dunkirk 
and Allegheny Valley's proportion. As I say, it was no light task, and realising that,! 
I said to these gentlemen, "we will undertake to do this business for you, to secure 
to each one of you the percentage which we may have agreed upon, upon condition 
that we are paid for that service a sum which shall be equal to 10 per cent, of the rate 
you receive for doing the business." There were, however, to be added to what I 
have already stated as an inducement for the railroad companies to pay that com-l 
mission, other agreements, one of which was that we assumed the risk of loss by firel 
in transportation. That may seem to be to the gentlemen of the committee a cheap! 
thing to do, but Mr. Gowen understands, as well as I do, that a railroad company 
cannot divest itself of the obligations by the common law imposed upon it as a common 
carrier without a special agreement to that effect. We took that risk, and did not collect 
from the railroad companies, any of them, any losses sustained by fire in transit. Wei 
furnished terminal facilities at the seaboard free of charge to the railroad companies, 
and for all this service the Pennsylvania Railroad agreed to pay us a commission of! 
10 per cent. We carried out our part of the contract faithfully, and secured to the 
roads such a division of the traffic as kept them in a state of accord and peace, so far 
as quantity was concerned, and yet the Pennsylvania Railroad paid to other shippers 
than ourselves a rebate or a drawback, or whatever you choose to call it, on their ship- 
ments, which were exactly equal to the 10 per cent, they agreed to pay us. So that in 
that respect we were not favoured at all 



[370] 






NUMBER 28 (Sec page 196) 

CORRESPONDENCE BETWEEN WILLIAM ROCKEFELLER AND 
MR. SCOTT IN OCTOBER, 1877 

[Commonwealth of Pennsylvania vs. Pennsylvania Railroad Company, United 
Pipe Lines, etc., Testimony. Appendix, pages 734-736.] 

Philadelphia, October 17, 1877. 
Thomas A. Scott, 

President Pennsylvania Railroad Company. 

Dear Sir: In consideration of the covenants by your company to be performed 
as hereinafter mentioned, we will agree as follows: 

First. — It having been agreed by the trunk lines that of all the oil shipped by the 
runk lines to the cities of New York, Philadelphia, and Baltimore, 63 per cent, shall 
be considered as the proportion which would naturally go to the City of New York, 
and it having been further agreed that of this percentage one-third shall be transported 
3ver each of the trunk lines having termini in New York, viz. : The New York Central, 
Erie, and Pennsylvania, we agree, unless the aforesaid division shall be changed by 
mutual consent of said trunk lines, to ship such quantities of oil over your lines, from 
time to time, as will, when added to the quantities shipped by parties other than 
ourselves, give your line one-third of the shipments to New York by the said trunk 
lines, or 21 per cent, of the whole amount shipped to the three cities above named 
by the said trunk lines; it being understood that in stating the number of barrels for 
the purpose of making this division or for carrying out any of the other stipulations 
herein contained, the barrel of forty-five gallons of crude shall be the unit, and that 
each barrel of the usual size of refined oil shall be counted as equal to one and 
three-tenths barrels of crude. 

Second. — It having been agreed, as we are informed, between your company and 
the Baltimore and Ohio Railroad Company, that of the remaining 37 per cent, of the 
total shipments aforesaid you should be entitled to transport by lines owned and con- 
trolled by your company to Philadelphia and Baltimore, 26 per cent., and the Balti- 
more and Ohio Railroad Company to Baltimore by its lines 1 1 per cent., we agree, 
'until these proportions are changed by mutual consent, to ship such quantities to 
Philadelphia and Baltimore by lines owned and controlled by your company as will, 

[371] 



THE HISTORY OF THE STANDARD OIL COMPANY 

when added to shipments of parties other than ourselves, give for transportation b ; 
your lines to Philadelphia and Baltimore, 26 per cent, of the total shipments by th 4 
four trunk lines to the three seaboard cities above named. 

Third. — We further agree that the quantity of oil which we will ourselves shij 
over your line shall not in any calendar year be less than two million barrels, basec ' 
upon an average production of not less than thirty thousand barrels per day. I 
we should fail to give you traffic herein named, we will pay to you a sum equal to the i 
profits which you would have realised upon the quantity in deficit — provided, however 
that you will at all times furnish us with transportation, as we may reasonably require it 

Fourth. — We will, of the proportion of oil going to Philadelphia, refine as muchi 
as is practicable in Philadelphia, as we understand that you desire to see the refining; 
capacity of Philadelphia fully employed, and, if needful, increased. And in shipping! 
by your lines, whether to Philadelphia, Baltimore, or New York, we will endeavour 
to deliver the oil to you at points from which you will have short hauls; and to the 
extent that we can, we will make the proportion of crude shipped as large as pos-l 
sible, as we understand its transportation to be more profitable to you than that of 
refined oil. 

Fifth. — We ask, in consideration of the above named guarantee of business, uponj 
which it is understood we shall pay such rates as may be fixed from time to time by 
the four trunk lines (which rates it is understood shall be so fixed by the trunk lines, 
as to place us on a parity as to cost of transportation with shippers by competing lines), 
that you shall furnish us promptly all the transportation we may reasonably require; 
and that you shall allow to, and pay us, weekly, such commission on our own ship- 
ments and the shipments which we may control, as may be agreed to by your com- 
pany and the other trunk lines from time to time; this commission, it is understood, 
has for the present been fixed at 10 per cent, upon the rate, and shall not be fixed 
at a less percentage, except by mutual agreement of your company and ours — 
provided, that no other shipper of oil by your line shall pay less than the rate fixed 
for us before such commission is deducted; and no commission shall be allowed any 
other shipper unless he shall guarantee and furnish you such quantity of oil for 
shipment as will, after deduction of commission allowed him, realise to you the same 
amount of profit you realise from our trade; that is, you will not allow any other 
shipper of oil any part of such commission, unless after such allowance you realise 
from the total of his business the same total amount of profit you realise from the 
total of our business, except so far as your company may be compelled to fill certain 
contracts for transportation made by the Empire Line with refiners and producers, 
which contracts terminate on or before May 1, 1878, a statement of which shall 
accompany your reply to this letter — such contracts to be fulfilled. We agree that 
all the stipulations herein contained shall be carried out by us for the period of five 
years from the date hereof, unless sooner changed or terminated by mutual consent, 

[372] 



APPENDIX, NUMBER XXVIII 

; provided that you advise us in writing within ten days that your company accept, 
and will carry out, its part of the arrangement for the like term. In entering into this 
agreement we desire to put ourselves on record as expressing our wish and intention 
of making our business relations with your company such that not only your main 
lines but the connecting lines controlled by you, especially the Allegheny Valley Rail- 
road, shall secure the best possible results from the oil traffic consistent with our ex- 
isting obligations to other transportation interests. We feel that the location of our 
refineries — all of which can be reached by your lines — should naturally create a close 
alliance between your company and ours, and that the best results from this impor- 
tant traffic can only be secured to yourselves and ourselves, and, we might add, 
to the entire petroleum interests of the country, by the establishment of friendly and 
mutually satisfactory arrangements between us. 

Yours truly, 

Standard Oil Company, 
By William Rockefeller, 

Vice-President. 

Office of the Pennsylvania Railroad Company, 

Philadelphia, October 17, 1877. 
William Rockefeller, 

Vice-President Standard Oil Company. 
My Dear Sir: I am in receipt of your letter of this date, reciting the understanding 
and agreement to exist between the Pennsylvania Railroad Company and your com- 
pany for a period of five years. 

I beg leave to say that the same covers the whole basis of the arrangements, 
and is satisfactory to this company — the provisions of which will be duly carried out 
by it. Very respectfully yours, 

Thomas A. Scott, 

President. 



[373] 



NUMBER 29 (See page 197) 



CORRESPONDENCE BETWEEN MR. O'DAY AND MR. CASSATT 

[Commonwealth of Pennsylvania vs. Pennsylvania Railroad Company, United 
Pipe Lines, etc., Testimony. Appendix, pages 732-733.] 

Office of the American Transfer Company, 

Oil City, Pennsylvania, February 15, 1878. 
A. J. Cassatt, 

Third Vice-President, Philadelphia. 

Dear Sir: Referring to the conversation I had with you in January, I wish to submit 1 
the following facts: That our company has at large expense (involving the payment, 
of several hundred thousand dollars), purchased and created certain pipe-lines to I 
Pittsburg, through which we are able not only to protect the Allegheny Valley road \ 
in a paying rate of freight for the oil it carries, but also to secure to that company | 
(by agreement with it) its full proportion of the oil traffic going to Pittsburg. 

You are acquainted with the efforts we have put forth in other directions during 
the last months in which we have acted in thorough accord with the trunk line interests, 
and I believe I may say without egotism, we have, to the extent of our ability, effect- 
ually protected their interests in such action. I here repeat what I once stated to 
you and which I asked you to receive and treat as strictly confidential, that we have 
been for many months receiving from the New York Central and Erie Railroads certain 
sums of money, in no instance less than twenty cents per barrel on every barrel of crude 
oil carried by each of those roads. 

Co-operating, as we are doing, with the Standard Oil Company and the trunk lines 
in every effort to secure for the railroads paying rates of freight on the oil they carry, 
I am constrained to say to you that, in justice to the interest I represent, we should 
receive from your company at least twenty cents on each barrel of crude oil you trans- 
port. 

The fruit of co-operation referred to has been fully evidenced in the fact that since 
last fall your company has received fifty to sixty cents per barrel more freight than 
was obtained by it prior to our co-operation. 

In submitting this proposition I feel I should ask you to let this date from the first 
of November, 1877, Dut I am willing to accept as a compromise (which is to be re- 

[374] 



APPENDIX, NUMBER XXIX 

garded as strictly a private one between your company and ours) the payment by 
you of twenty cents per barrel on all crude oil shipments commencing with February 
i, 1878. 

I make this proposition with the full expectation that it will be acceptable to your 
company, but with the understanding on my part that in so doing, I am not asking 
as much of the Pennsylvania road and its connections as I have been and am receiving 
from the other trunk lines. 

You are doubtless aware that during the last two years a large amount of oil has been 
shipped to Richmond via the Chesapeake and Ohio road, and that since the purchase 
of the Pittsburg lines by us not one barrel has been permitted to go in that direction. 

During the season of 1877, and so long as the Columbia Conduit Company afforded 
the Baltimore and Ohio road access to the Oil Regions, that company, I understood, 
refused to accept from the other trunk lines (for its proportion of the oil traffic) less 
than 20 per cent., but after the purchase by us of the Columbia Conduit you succeeded 
in arranging with the Baltimore and Ohio for about half as much as they previously 
claimed. 

I may add that the Baltimore and Ohio road are wholly dependent upon us for any 

oil they may carry. Yours truly, 

(Signed) Daniel O'Day, 

General Manager. 

„ n , n ~ „ Philadelphia, May 15, 1878. 

R. W. Downing, Comptroller. J J 

Dear Sir: I enclose herewith copy of letter from Daniel O'Day, general manager 
of the American Transfer Company, which refers to a conversation I had with him 
in January last in reference to allowing the American Transfer Company a commis- 
sion of twenty cents per barrel on all crude oil transported over this company's 
lines to New York, Philadelphia and Baltimore. 

I agreed to allow this commission from and after February 1, until further notice, 
after having seen receipted bills showing that the New York Central Railroad allowed 
them a commission of thirty-five cents per barrel and that the Erie Railway allowed 
them a commission of twenty cents per barrel on Bradford oil, and thirty cents per 
barrel on all other oil, and that they had been doing so continuously since the 17th 
of October last. 

Of this, however, you saw the evidence yourself in the bills which I submitted to 
you last week. Please, therefore, prepare vouchers in favour of the American Transfer 
Company per Daniel O'Day, for this commission of twenty cents on shipments during 
February, March and April, and hereafter make settlements with that company 

onthly. Yours truly, 

(Signed) A. J. Cassatt, 

Third Vice-President. 

[375] 



m 



NUMBER 30 (See page 197) 



HENRY M. FLAGLER'S TESTIMONY ON THE REBATE PAID TO 
THE AMERICAN TRANSFER COMPANY 

[Proceedings in Relation to Trusts, House of Representatives, 1888. Report Number 
31 12, pages 777-778.] 

Q. Mr. Cassatt testified and offered in evidence the correspondence which showed 
that his company agreed to the payment of that 22$ cents to the American Transfer 
Company on every barrel of crude oil passing over their line in consequence of the 
fact that the writer of the first letter on behalf of the American Transfer Company 
had asserted that the New York Central and the New York and Lake Erie roads 
paid the same amount. You know that to be a fact, do you not ? 

A. May I explain that now ? 

Q. You are entitled to make any explanation you wish. 

A. The American Transfer Company was built originally for, really, the New York 
Central road. The New York Central had no means of getting south of Titusville 
with its cars. The American Transfer Company's lines were built really in the interest 
of the New York Central road. In those days the pipe-lines purchased the oil and 
oftentimes sold it at just what they paid for it, and sometimes less. They got more 
when they could. The New York Central, as I said, paid the American Transfer 
Company a price, which I presume was the figures named in Mr. Cassatt's testimony, 
for collecting oil in the lower country and delivering it to the Dunkirk and Allegheny 
Valley, which is the New York Central's connection. As that pipe-line increased its 
business the Erie road did the same thing. Later the Pennsylvania Railroad wanted 
the service of that pipe-line in collecting oil. Mr. O'Day did what I suppose any 
manager would do. He said to Mr. Cassatt, if you do the same thing for me that 
the other roads are doing, I have no objection to making the same arrangement with 
you. The payment made by the Pennsylvania, the Erie, and the New York Central 
roads constituted the gross income of the American Transfer Company, out of which 
it paid its expenses of doing its business and its losses, if it made any, in the purchase 
and sale of oil. It acted as a factor for those northern roads, and, as I said, was orig- 
inally built in order that oils might be reached by the New York Central. 

Q. But in addition to the sum of 22i cents, or whatever it may have been, which 

[376] 



APPENDIX, NUMBER XXX 

these trunk lines paid to the American Transfer Company, that company as a trans- 
porter of oil through its own pipe got this pipage charge besides ? 

A. I never so understood it. As I remember the facts in the case, while there was 
a nominal pipage — there might have been; I do not say there was; I do not remember. 

Q. You do not say there was ? 

A. I do not remember. But while there might have been a nominal pipage, that 
nominal pipage might have been absorbed in the crude oil. In other words, it threw 
away its nominal pipage and relied 

Q. I am speaking now solely of the relations of the American Transfer Company 
to the railroads. The former received 22j cents on every barrel of oil passing over 
the Pennsylvania road and the other roads. But the American Transfer Company 
was a transporter of oil itself, and to the extent it transported oil through its pipes 
it made charge for that service also ? 

A . That is a point where I say I want to correct you. While it may have made 
a nominal charge, about which my memory fails me, I say it threw away that nominal 
charge by paying to the owner or the producer of the oil the value of the oil at the 
wells, plus what that pipage might have been, and that twenty odd cents paid by the 
Pennsylvania constituted its gross revenue. 



[377] 



NUMBER 31 (See page 199) 



LETTER TO PRESIDENT SCOTT OF THE PENNSYLVANIA RAIL- 
ROAD FROM B. B. CAMPBELL AND E. G. PATTERSON 

[Proceedings in Relation to Trusts, House of Representatives, 1888. Report Number 
31 12, pages 363-365J 

To the President and Directors Pennsylvania Railroad Company. 

Gentlemen: About July I last the undersigned were of a delegation from the Oil 
Region of our state, asking of your road an assurance that its course during the pre- 
ceding two months, in giving to all producers and shippers of petroleum equal facili- 
ties and impartial rates, might be formally made its permanent policy. 

In an interview with your president at that time, that assurance was given, coupled 
with the requisition that such support should be given it by the producers and shippers 
as would repay it for the exertion it must make in defending that policy, and guarantee- 
ing that such support should be continuous and permanent. 

The people of the Oil Region were only too glad to enter into such an agreement, 
and steps were immediately taken of a practical nature to carry it out. 

It was understood that it could not be immediately done. 

After the formal abandonment by the trunk lines of the South Improvement Com- 
pany in 1872, your road for some months faithfully adhered, as we believe, to the 
pledge then given by all the trunk lines, that no discrimination should thenceforth 
be permitted. We believe also that it stood alone among the roads in adhering to it, 
for gradually the persons constituting the South Improvement Company were placed 
by the roads in as favourable a position as to rates and facilities as had been stipulated 
in the original contract with that company. At this time the line of your road in Western 
Pennsylvania, including that under your influence and control, was dotted with re- 
fineries capable of producing a large proportion of the refined oil needed by the world. 
The policy of the Standard Oil Company, the successor in everything but name of 
the South Improvement Company, has resulted in the dismantling and abandonment 
of every one of those refineries (as soon as they fell into their possession) which could 
not be reached by some other and a rival road to yours, and now there are in the Oil 
Region proper but few refineries and those universally owned by the Standard Oil 
Company, those in Pittsburg being owned or controlled by that combination or by 

[378] 



APPENDIX, NUMBER XXXI 
the Conduit or Empire lines. The use and export of crude oil is but a small proportion 
of the consumption, and time and money were required to re-establish this great 
product upon its former basis, and these people were glad to furnish all needed means 
to accomplish this end, as are also capitalists at other points not strictly within the 
Oil Region, yet upon your lines. 

We are met in the midst of this preparation by assertion of agents of the combination, 
and as accepted news by the press, that such a combination is entered into, or under 
consideration by your road and the Empire Transportation Company, the Erie, 
Central, Lake Shore, and Baltimore roads of the one part, and the Standard Oil 
Company of the other, as would preclude your road from carrying out the policy 
announced by your president at the interview heretofore referred to. 

We believe there is danger that such a result may be reached, and we in behalf of 
these whom we represent, in making our efforts to prevent its accomplishment, or 
if accomplished to defeat it, as the first step, address this communication to you, 
desiring to present its aspect as affecting your road from our standpoint. 

So far as we, and the general public are affected, you will not question that the 
present scheme is but the repetition of the South Improvement scheme, never aban- 
doned by its authors, and seeking the sole and absolute control of all petroleum pro- 
duced, purchased, refined, and shipped within the states of Pennsylvania, New York, 
Ohio, or West Virginia. 

The overproduction of 1873, 1874, 1875, and the consequent almost entire de- 
struction of petroleum values, gave the Standard Oil Company, with its organisation 
and capital, almost the desired monopoly. The equalisation of consumption and 
production of 1 876-1 877 brought that combination to the same point that they were 
in 1872 — utterly unable by reason of geographical position, if for no other, to mo- 
nopolise this product without the co-operation of all the transportation, and then 
only under a contract similar to that of the South Improvement Company, and in- 
cluding all of its dangerous and extraordinary features. None other can serve them, 
and so they stand to-day, and we believe that your road can enter into no compromise, 
treaty, or arrangement which will serve the ends of the monopoly, under any less 
stringent stipulations and devoid of the liabilities thereof. 

Under such an arrangement it is probable that the Central and Erie have trans- 
ported its oil, during nearly all of this year. It is now an open secret in the producing 
region, that no charges follow the shipments over at least one of these roads, and 
crude oil is delivered in New York, on shipping order, at prices which barely repay 
the cost of packages and contents, with little or no remainder for transportation charges. 
This aid to the scheme of the combination is possibly given in view of the high tariff 
and consequent large revenue promised to be derived hereafter, when the scheme 
has been made a success, and all opposition in trade and transportation extinguished. 

Suppose your opposition to be withdrawn, and you join the alliance, when does 

[379] 



THE HISTORY OF THE STANDARD OIL COMPANY 

your profit come in ? We are entitled to impartiality. As we are advised, the law, 
common and statute, provides for it; it pronounces those participating in such a scheme 
conspirators against the public weal, and there is no court upon your line but what 
will enforce by mandamus and injunction the impartiality that we ask. The com- 
bination will promise you an immediate increase of revenue. If we are well advised, 
will you realise upon that promise ? Can you make a contract with them that if we 
do not succeed in destroying, it will be their interest to keep ? You will not have a 
refinery left; and they are now completing pipe-lines from Pittsburg to Oil City, and 
can deliver the oil received by all their pipe-lines, independent of your road and its 
branches. In case of a contract with them executed but afterwards broken, from what 
source will you derive your oil traffic and what court will enforce the broken contract 
in your favour ? We urge that you cannot enter into any arrangement with the monopoly 
that can be permanently useful to it and to you, and doubt if it can be made tem- 
porarily so. 

Suppose that you decline to enter into such a treaty, or any such scheme, but an- 
nounce and adhere to the opposite policy ? There is no law, not even that of necessity, 
to compel you to serve the ends of the Standard Oil Company. 

If Messrs. Vanderbilt and Jewett believe that their aid alone is insufficient to the 
establishment of the monopoly, for how long will they carry its oil as at present for 
nothing, when they could have full rates, by uniting the railroad interest, and leaving 
the Standard Oil Company to do its business in common with all others ? 

If the Pennsylvania Railroad, having the geographical position in its favour, will 
announce and adhere to the policy of impartial and competitive rates, in three or 
six months, it can have all the facilities and extent of business which the Standard 
Oil Company can give the competitive roads, and by men who have all to gain by 
so doing. 

We ask consideration of our views and of our assurance of good results from their 
favourable consideration. 

If you choose to place the matter in the light of an experiment, its trial can cost 
you nothing but the failure to realise upon the immediate fulfillment of the promises 
of the common enemy, and that realisation we believe will not be permitted. 

Very respectfully, 

B. B. Campbell, of Pittsburg, 



Philadelphia, September n, 1877. 



E. G. Patterson, of Titusville. 



[380] 



NUMBER 32 (See page 225) 

PRODUCERS' APPEAL OF 1878 TO GOVERNOR JOHN F. HARTRANFT 

OF PENNSYLVANIA 

[Proceedings in Relation to Trusts, House of Representatives, 1888. Report Number 
31 12, pages 351-356-] 

Sir: The undersigned, members of a committee appointed by the General Council 
of the Petroleum Producers' Union for that purpose, address to you, as the official 
head of the Commonwealth, a plain statement of facts, to a great extent known to 
be true from personal knowledge, and all material parts of which are susceptible of 
proof by competent evidence. 

We address you, not only as individuals whose personal interests have been affected, 
whose property has been rendered comparatively valueless, and whose capital and 
labour are bound against their consent, to increasing the gains of grasping corporations, 
but as citizens of the great Commonwealth of Pennsylvania, apparently prostrate and 
powerless to control one of its greatest products, and the immense business that 
annually flows from it. 

The petroleum production of Pennsylvania is confined geographically to the North- 
western portion of the state, extending from its border upon New York State nearly 
to Pittsburg, and is the chief interest in the counties of McKean, Warren, Forest, 
Crawford, Venango, Clarion, Butler and Armstrong. 

The amount of money invested in well property, constantly to be renewed and 
kept good, represents at least twenty millions of dollars, and while the value of the 
lands upon which the wells are located is not easily determined, it represents many 
times the value of the well property. 

Petroleum should yield at the wells, with its transportation and sale unfettered, 
twenty-five to thirty-five million dollars annually, while as an article of export, it 
ranks third among the products of the nation, and as first among its manufactured 
exports. 

For transportation outlets, it has the Pennsylvania Railroad to the seaboard at 
an average distance therefrom of less than 400 miles. The New York Central and 
Lake Shore Railroads reach Oil City by way of Cleveland, Ohio, 764 miles from 
the seaboard, and Titusville, by way of Dunkirk, New York, 571 miles to the sea- 

[381] 



THE HISTORY OF THE STANDARD OIL COMPANY 

board, and the New York, Lake Erie and Western, and Atlantic and Great Western 
Railways reach Oil City by way of Meadville, 550 miles to the seaboard. 

CONDITION OF THE TRADE IN 187I 

At that time the lines of the Pennsylvania Railroad in the Oil Region were dotted 
with refineries located at Tidioute, Henry's Bend, Oleopolis, Oil City, Corry, Titus- 
ville, Miller Farm, Rouseville, and other points on the Oil Creek Railroad, at various 
points on the Philadelphia and Erie Railroad, and on the Allegheny Valley Railroad, 
these roads being tributaries of and controlled by the Pennsylvania Railroad, while 
upon its main line extensive refineries were located at Pittsburg and Philadelphia. The 
refineries at Cleveland, Ohio, confined themselves in a measure to the Western domestic 
trade, and those of Portland, Boston and New York had generally specialties in 
the trade. 

The markets were filled with buyers of crude and refined; information as to stocks, 
production and consumption was open and obtainable, and values were regulated 
by the law of supply and demand. 

In its relation to this trade, Western Pennsylvania almost exclusively possessing 
this product, with ample refineries in its midst, with its great state railroad penetrating 
the producing region, and by it, having the shortest route to the seaboard, with the 
Allegheny River as an additional means of transportation to Pittsburg, the Western 
terminus of the Pennsylvania Railroad, and with Philadelphia, its Eastern terminus 
as an exporting point, Pennsylvania had, and was entitled to, the control of the refining 
and transportation of its own product. 

CONDITION OF THE TRADE IN 1877-1878 

Now, this is all changed! The refineries on the lines of the Pennsylvania Railroad 
have been demolished, excepting where reached by rival railroads, and this business 
has been transferred to Cleveland and New York, the refineries remaining in this 
state having passed into the ownership and control of a foreign organisation, as has 
also the local transportation from the wells, by means of pipe-lines to the lines of the 
railways. 

The transportation of every nature is subject to its dictation; it possesses every 
avenue of information; it affixes its own value to the crude product when purchasing 
and the refined products when selling; it establishes its own rates of compensation 
to be paid the railways, and the laws of commerce which govern values in other products 
are in this a part of the history of the past. So far as the petroleum trade is con- 
cerned an enterprise or investment therein is only a wager as to what step the Standard 
Oil combination will next take. With the world consuming double the amount of 

[382] 



APPENDIX, NUMBER XXXII 
our petroleum that it did in 1871, the thirty millions which should be received from 
the crude product has dwindled to its half; the fifteen millions which should be the 
profit of Pennsylvania refineries has been transferred to Ohio and New York, and 
the twenty millions which should have swelled the earnings of the railways have 
gone — no one dare say where — but the colossal fortunes acquired since 1872 by 
every member (so far as its members are known) of this now world-renowned organi- 
sation, are proofs of the success attendant upon a scheme, no less unlawful than 
gigantic, and which has all the outward and visible signs of inward and spiritual 
corruption. To-day a foreign corporation is the absolute master of the production 
and its value, of transportation by pipe-lines, transportation by railroad and the 
compensation therefor, of storage and refining, and the profit thereof, and dictates 
prices through the world of the first, or among the first, of the products of Pennsylvania, 
and of the United States, and this to the impoverishment of thousands of citizens, 
and the destruction of each of these interests within the state. That this has been 
accomplished through and by means of the co-operation of the Pennsylvania Railroad, 
its management and influence, is matter of record. 

THE FIRST ATTEMPT TO MONOPOLISE THE TRADE 

was initiated by the conveyance, by R. D. Barclay, Thomas A. Scott's private secretary, 
and S. S. Moon, the legislative agent of the Pennsylvania Railroad, to a party composed 
principally of Cleveland and New York men, headed by an agent of the New York 
Central and Erie Railways, of a charter granted by the Legislature of Pennsylvania 
for a different purpose, under which they organised for the seizure of the petroleum 
trade, retaining the charter title of 

"the south improvement company," 

the then managers thereof being the managers of the organisation now known as the 
Standard Oil Company. 

With the South Improvement Company, not a member of which lived in the Oil 
Region, or was an owner of oil wells or oil lands, the Pennsylvania Railroad hastened 
to execute a contract (January 18, 1872), giving it the sole and exclusive control of 
all petroleum shipments thereon, regardless of ownership, and securing this by the 
payment by the railroad of a rebate or drawback to the South Improvement Company 
of such a sum as would have inevitably driven all others out of the trade, and lest 
there might be doubt as to the intent to so do, it was expressly stipulated in the fourth 
article thereof that that was the result aimed at, and the Pennsylvania Railroad 
therein bound itself, so far as it legally might, to aid in accomplishing it. 

The action of the Legislature and of Congress, and the uprising of the people against 

[383] 



THE HISTORY OF THE STANDARD OIL COMPANY 

this unparalleled iniquity, destroyed the combination for the time being, the railroads 
having pledged themselves to never attempt a similar outrage. 

The local transportation of crude petroleum had been gradually changing from 
movement by barrels to carriage in 

PIPE-LINES 

from the wells to tankage located on the lines of railway, the principal of which pipe- 
lines, at this time known as the Pennsylvania Transportation Company (formerly 
Allegheny Transportation Company), was under special charters of the Legislature 
and owned and controlled by Messrs. Scott, of the Pennsylvania, and Fisk and Gould, 
of the Erie Railways. The Legislature had been petitioned at various times since 
1866 to pass a Free Pipe Law, but the various bills introduced for that purpose could 
never overcome the opposition of the Pennsylvania Railroad in the Legislature. During 
the excitement attendant upon the rise and fall of the South Improvement Company 
scheme, the effort was renewed, and the Legislature enacted a law, restricted to the 
eight oil producing counties, but the Pennsylvania Railroad influence was strong 
enough to exclude Allegheny County from the operation of the Act, thus shutting out 
Western Pennsylvania from Pittsburg, the terminus of the Pennsylvania Railroad, 
the natural outlet of the Oil Region, and the natural refining point of the United States. 

The succeeding efforts to pass a Free Pipe Law, either general in its nature or to 
permit construction of pipe-lines to lines of railway within the state, or to include 
Allegheny County in the law of 1872, have been defeated invariably by the opposition 
of the Pennsylvania Railroad, and the law of 1874, known as the Wallace Act, was so 
framed and enacted as to leave it doubtful whether it had not succeeded in with- 
drawing from the eight counties referred to all the rights conceded to them by the Act 
of 1872, a wrong which no subsequent Legislature has been able to redress. 

Under the law of 1872, pipe-lines owned by citizens in the Oil Region had been or- 
ganised and were in operation, giving free access to the railways, but after the passage 
of the Wallace Act (April 29, 1874), the Standard Combination, which had never 
really abandoned the South Improvement scheme, systema^cally undertook their 
destruction by forcing them into insolvency and then absorbing them. This required 
railway co-operation, and various means were employed therein, notably among 
which is the scheme adopted by the ring and promulgated by the railroads October 1, 
1874. An explanation is necessary to understand why the railroads should unite: First, 
to carry oil received by them through pipe-lines that had combined to maintain a given 
rate for pipage twenty-two cents per barrel cheaper than on oil received from pipe-lines 
not so combining, and Second, to further weaken the refineries remaining in Western 
Pennsylvania by depriving them of their geographical advantage of proximity to the 
crude product, to the coal used as fuel, and to the exporting ports by free transportation 
of crude petroleum to the ring refineries in other states. Various pipe-lines had already 

[384] 



APPENDIX, NUMBER XXXII 

been forced out of existence, had been bought up and united under the name of "The 
United Pipe Lines," which was owned, one-third by the Standard Oil Company, 
one-third by the Lake Shore and New York Central Railroads, and one-third by 
individuals who were members of and directors in the Standard Oil Company. The 
Pennsylvania Railroad had as its particular feeder a similar organisation, known 
as the "Empire Pipe Line." This explains the first point referred to above. The 
second, so far as the Pennsylvania Railroad is concerned, is inexplicable upon any 
ordinary hypothesis or under any known theory in railroad politics. The scheme was 
a success, pipe-lines one after another succumbed, and refiner after refiner was bank- 
rupted and his works absorbed. 

This effected, the monopoly, backed by the New York railroads, in one of which it 
exercised unlimited power, felt strong enough to demand of the railroads that it 
should be given the future sole conduct of the trade under the old South Improvement 
plan. Upon this the Pennsylvania Railroad apparently awoke to its danger, resisted 
the demand, and in July, 1877, President Scott announced as the policy of the Penn- 
sylvania Railroad open and free trade to all shippers of petroleum. It was then con- 
ducting its oil traffic through its ally, the Empire Transportation Company, which 
possessed a system of pipe-lines (before referred to) extending over the Oil Region, 
controlling a large portion of the production, with ample tankage, with a large rolling 
stock upon the Pennsylvania Railroad, and owning or controlling a refining capacity 
nearly equal to one-half the consumption of the world. In the following month 
(August, 1877), immediately after the riots at Pittsburg, which were in their extent 
the natural outgrowth of railroad freight discrimination against that city, the monop- 
olists succeeded in convincing the officials of the Pennsylvania Railroad that it was 
to their or its interests to force the Empire Company, its cars, its pipe-lines, its 
tankage and its refineries into their hands. The people of Western Pennsylvania pro- 
tested in a communication to the president and directors of the Pennsylvania Railroad 
in September, before the extent of the proposed iniquity had become fully known 
to the public, which communication seems never to have reached the board of 
directors. The outrage was finally consummated October 17, 1877, and the Penn- 
sylvania Railroad was left without the control of a foot of pipe-line together, a 
tank to receive, or a still to refine a barrel of petroleum and without the ability to 
secure the transportation of one except at the will of men who live and whose inter- 
ests lie in Ohio and New York. 

Into those hands had now passed the last refineries of Pennsylvania, the last means 
of transportation from the wells to the railroads, and the last means of carriage to the 
markets of this country and of the world. The South Improvement scheme (less 
its chartered organisation as in 1872) was at last an accomplished fact, and in the 
successful designing, prosecution, consummation and operation of which it is im- 
possible not to believe that railroad officials were personally interested. 

[38s] 



THE HISTORY OF THE STANDARD OIL COMPANY 



CONGRESSIONAL LEGISLATION 

As the conspiracy was evidently gaining strength, the people of Pennsylvania united 
in an effort to induce Congress to again interfere as in 1872, and in 1876 it directed, 
an investigation, which was conducted in a dilatory manner by a committee, a promi-, 
nent member of the Standard Oil Company, and not a member of Congress, presiding) 
behind the seat of the chairman. Vice-President Cassatt, of the Pennsylvania Railroad,, 
was the only prominent railway official who appeared in obedience to the subpoenas j 
of the Speaker of the House of Representatives, and he refused to give the committee : 
any information as to the matter under investigation, and the counsel of the Pennsyl- 
vania Railroad, ex-Senator Scott, appeared before the committee in justification of 
his so doing. The financial officer of the Standard Oil Company appeared before 
the committee, accompanied by a member of Congress — also a member of that Com- 
pany, and promptly refused to give the committee any information as to the organisa- 
tion, or the names of its members, or its relations with the railroads. The influence 
and power of the combination was apparent; the committee never reported, never 
complained of the contempt of its witnesses, and all the evidence and record of its 
proceedings effectively disappeared. In 1877-78, a bill was introduced by Represen- 
tative Watson, of Western Pennsylvania, seeking to prevent discrimination in inter- 
state commerce, which has been reported by a committee, but which can hardly 
overcome the covert opposition which it meets. 

RECENT STATE LEGISLATION 

All efforts to obtain a Free Pipe Law in this state having through a series of years 
proved unavailing, although New York, in its efforts to control the trade in Pennsyl- 
vania petroleum, had enacted such a law, a bill was prepared enforcing in this state 
the Third and Seventh Sections of the Seventeenth Article of its Constitution. This 
bill, known as 

THE ANTI-DISCRIMINATION ACT, 

provided that shippers of property by car-load from any point on a railroad within 
the state to any other point within the state, should be charged equal rates and given 
equal facilities. Copies of the proposed law were sent to the prominent railroad officials 
in the state, but its provisions were so fair and protective to every citizen of the state, 
and to every legitimate railroad interest, that neither before the Judiciary Committee 
of the Senate, which reported it favourably by an unanimous vote, nor in the Senate, 
which passed it with but one dissenting voice, nor before the Judiciary Committee 
of the House, which reported it unanimously, did any railroad stockholder, official, 
or legislative agent appear to offer an objection to its becoming a law. Yet it was 

[386] 



APPENDIX, NUMBER XXXII 

killed in the House by the familiar means employed by legislative agents in disposing 
of measures objectionable, but not debatable. Had the bill become a law, it would 
have rebuilt the refineries of the state, with Philadelphia (whose petroleum trade 
under the monopoly has gradually dwindled to a fraction of its former magnitude) 
as the exporting point, with the Pennsylvania Railroad as the transporter thereto, and 
the people of Western Pennsylvania might have arisen from a community of miners, 
working for the benefit, and under the rule, of a foreign corporation, to their former 
conditions as citizens of a prosperous mining and manufacturing section of the state. 

RESULTS AND EFFECT OF THE SUCCESS OF THE CONSPIRACY 

Upon or with the New York railroads no appeal or representation of the people of 
this section would have any weight or influence. Their managers reside in Cleveland 
and New York, and are subject to the daily manipulations of the monopoly managers, 
while in our own state, to all efforts for emancipation or toward the restoration of 
trade to its natural channels the Pennsylvania Railroad and its power is as a Chinese 
wall. Its president and vice-president admit the preferences in rates given to the 
monopoly, and boldly announce their intent to continue in so doing; they claim the 
legal right to so do, and challenge resistance; they obstruct all efforts of producers, 
shippers and refiners by delaying or restricting facilities; by threatening other railroads 
with severance of connections and deprivation of general traffic if they transport pe- 
troleum for parties outside the monopoly; they refer applicants for rates and facilities 
over the Pennsylvania Railroad to the Standard Oil Company, and offering their 
personal service as negotiators for such rates and facilities, assure all that there is 
no hope of success in the trade unless by a coalition with the Standard. 

We have thus far given not more than an outlined sketch of this enormous monopoly, 
its plan, its growth, and its results. We have not burdened your Excellency with details 
af individual oppression and outrage, but we should fail to discharge our duties to 
ourselves and as citizens if we neglect to recite some of the means by which the most 
deplorable results are produced to our state and section. Wrong is constantly per- 
petuated and right driven from us. True it is that in many things the monopoly 
las been unwittingly aided in its schemes by unwary concessions as to the man- 
agement of its business, by producers of petroleum themselves, but they had a right, 
as men pursuing an honest calling, to believe that they were dealing with honest 
nen, and not with a gang of public plunderers, leagued together by no better tie 
:han the sordid desire of gain, to be acquired by methods of corruption and lawless- 
less. 

By the theory of the law, corporations derive their powers from the people of the 
Commonwealth in General Assembly convened; they have no powers not delegated 
:o them by the people; they take nothing by implication; they are public servants, 

[387] 



THE HISTORY OF THE STANDARD OIL COMPANY 

invested for the public benefit with extraordinary privileges, and their charters may 
be taken from them when they cease to properly perform the duties of their creation. 
The railroad and pipe-line companies are common carriers of freight for all persons, 
are bound to receive it when offered at convenient and usual places, and to transport 
it for all, for reasonable compensation, without unreasonable discrimination in favour 
of any. These are but simple statements of well established legal principles, never 
doubted in any court, but affirmed by every tribunal that has ever considered them. 
Yet the people who granted these special privileges are now upon the defensive, 
their rights denied by these corporations, and they are challenged to enter the courts ! 
to establish them, while in the meantime they are inoperative to the irreparable injury 
of their business. They have yielded to the railways that they have created a part 
of their sovereignty, and given them the right to take private property for public use, 
but restricting such taking, strictly to such use. Yet where the narrow strip of land 
used as a railway roadbed runs through valuable oil lands, this combination is strong 
enough to demand from the railways its transfer to them, that they may and do thereon 
sink their own oil wells, and thereby drain the oil from the adjoining lands whose 
owners gave the strip for public use by a railroad. 

The owners of lands along the line of the Allegheny Valley Railroad, producing 
petroleum from those lands, with their own pipe-line running to their own shipping 
racks by the side tracks of that railroad, are unable to obtain cars in which to load 
their product for transportation, at any rate of freight, while their tanks overflow. 
Shippers of petroleum are refused cars, or are promised them, only to find the promises 
broken, and their contracts rendered impossible of fulfillment, while the monopoly 
demands and is given all the cars belonging to the railroads, it permitting its own 
private cars to meantime stand idle, so that the railroads may assert its inability to 
accommodate all. 

Owners of tanks connected with the monopoly pipe-lines, with ample storage therein 
for their own product, are refused transportation from their own wells upon the ground 
that "their tanks are full," a barefaced and daily demonstrated falsehood. Other 
producers of petroleum are refused transportation by the pipe-lines, on the plea of 
want of capacity to carry, and at the same time are informed that their oil will be 
carried if they will sell it to the ring, " immediate shipment." 

If the applicant's tanks are overflowing, or if he needs money and complies with 
their terms, he is offered a price from two and a half to twenty-five cents below the 
market value. If he accepts and sells a fixed amount of his oil, the pipe-line removes 
all but five or ten barrels, delays for days and weeks to take the remainder, and refuses 
to pay for any until all is taken. This is known as the "immediate shipment swindle." 

By their use of the petroleum of others stored in their tanks and lines; by the overissue 
of Pipe Line Certificates; by refusal to perform their public duties; by open defiance 
of the law and impudent evasions of its provisions, the pipe-line and railroad com- 

[388] 






APPENDIX, NUMBER XXXII 

panies leave to the people, whose creatures they are, but two remedies— an appeal for 
protection, first to the law of the land, next to the higher law of nature! 

These corporations have made themselves the interested tools of a monopoly that 
has become the buyer, the carrier, the manufacturer, and the seller of this product 
of immense value. It needs no argument or illustration to convince that in such a 
position this foreign corporation is in direct antagonism to the producer, the labourer 
and the consumer. 

The South Improvement conspiracy embraced in its scheme the ownership of the 
oil producing territory, wells and machinery. If the present course of its successor 
cannot be stayed, it is merely a question of time when the ownership of the entire 
oil production will fall into its hands through the impoverishment of thousands of 
our citizens and their inability to contend longer. 

That monopolies are dangerous to free institutions is a political maxim so old as 
to have lost its force by irrelevant repetition, but if anything were needed to awaken 
the public sense to its truth, the immediate effect of this giant combination is before 
us. Throughout the Oil Region, as wherever it does business, it now has its own acid 
works, glue factories, hardware stores and barrel works. We have seen that it is 
master of the railroads, and owns and controls all the refineries, all the pipe-lines. All 
these enumerated industries controlled by them employ large numbers of labourers 
dependent for the support of themselves and their families upon the daily labour given 
or withheld by this powerful conspirator. At the flash of the telegraphic message from 
Cleveland, Ohio, hundreds of men have been thrown out of employment on a few 
hours' notice and kept for weeks in a state of semi-starvation and justifiable discontent, 
deceived meanwhile with delusive promises of work, until the autocrat of a foreign 
corporation, maintained and upheld by the chief among Pennsylvania corporations, 
gives leave from within the borders of a foreign state for the Pennsylvania labourer 
to earn his bread. 

Along the valley of Oil Creek and the Allegheny Valley, where a few years since 
the smoke of busy refineries and their attendant industries darkened the air, piles 
of rusted iron and heaps of demolished brick work mark the results of the con- 
spiracy; where a few years since busy men crowded to and fro in the pursuit of lawful 
trade in a great staple, there is now silence and emptiness. The producer, once sur- 
rounded with competitive buyers of his product, now goes with crowds of his fellow 
victims to wait his turn for leave to sell it at a dictated price to a single agent of a 
single purchaser. 

To permit to stand unattacked the foul principles of such an organisation, to permit 
them to be fastened as lawful or right upon the policy of the Commonwealth or the 
nation, is to lay the foundation for the exile of capital, endless injury to the public 
interests, endless oppression of the labourer, riots, tumults, and the decay of the state. 

So far as this public wrong is within the scope of Executive interference, we ask 

[389] 



THE HISTORY OF THE STANDARD OIL COMPANY 

that immediate steps be taken to enforce by legislative enactment the wise provisions 
of our State Constitution, and by such legal processes as are necessary, compel obedience 
to law and the performance by chartered companies of their public duties. 

B. B. Campbell, of Pittsburg, 

E. W. Codington, of Bradford, McKean County, 

Lewis Emery, Jr., of Bradford, McKean County, 

George H. Graham, of Petrolia, Butler County, 

J. A. Vera, of St. Petersburg, Clarion County, 

H. O. Robbins, of Turkey City, Clarion County, 

L. H. Smith, Petrolia, 

R. B. Brown, Clarion, 

D. S. Criswell, Oil City, 

A. J. Salisbury, Karns City, 

A. N. Perrin, Titusville, Crawford County, 

W. B. Benedict, Enterprise, Warren County, 

H. W. Bumpus, Monroe, Clarion County, 

Samuel Q. Brown, Pleasantville, Venango County. 



[390] 



NUMBER 33 (See page 233) 

^ATEMENT OF CRUDE OIL SHIPMENTS BY GREEN LINE DUR- 
ING THE MONTHS OF FEBRUARY AND MARCH, 1878, TO 
NEW YORK, PHILADELPHIA, AND BALTIMORE; SHOW- 
ING DRAWBACKS ALLOWED TO AMERICAN 
TRANSFER COMPANY 

[Commonwealth of Pennsylvania vs. Pennsylvania Railroad Company, United 
Pipe Lines, etc. Testimony. Appendix, page 737.] 

Shipper. Consignee. Destina- No. of Barrels. Total. 

tion. Feb. March. Barrels. 

H.C.Ohlen H.H.Ohlen Com'paw 18,320 11,556 29,876 

W.H.Nicholson 



E.N.Hallock 

S. Craig 

H.L.Taylor & Co 
Ayres, Lombard & Co. 



16,983 31,169* 48,152* 

1,160* 1,160* 

2,384* 2,384* 

1,439* M39* 

2,688* 2,688* 



J. Rousseaux J. Rousseaux " 6,377* 6,932* 13,310 

W.L.Fox " " 3,150! 3,150* 

W. H. Nicholson Ayres, Lombard & Co. . . " 979* 979* 

J. A. Bostwick & Co. . . J. A. Bostwick & Co " 43>°74 45,9 J 5* 88,989* 

D. Grimm Jno. Ellis & Co " 722* 1,185* I >9° 8 

87,617 106,422 194,039 

J. Bushnell Warden, Frew & Co. . . . Phila. 1,725* 22,105* 23,831 

J. A Bostwick & Co. . " ... " 12,994 12,994 

J.Bushnell care Atlantic Ref. Co. .. . " 10,137 31,917 42,054 

J. Bushnell W.L.Elkins &Co " 14,684 7>793 22,477 

G.M.Robinson " " 7 6l i l »3* 2 2 '*43* 

E.N.Hallock Greenwich Refining Co . . " 3,413* 3,4*4* 

MaryR.Fox " .. " 1,308 1,308 

S.Craig " .. " 1,241* *M*h 

Fox & Fink " .. " 2,541 2,541 

Fox Estate " .. " S°« 5°* 

M.Lloyd M.Lloyd " 3,803 2,690 6,493 

S.Craig " " 2,426 2,426 

W.L.Fox " " I »9 6 o* 1,960* 

G.M.Robinson F. Farnsworth " 362* 80 442* 

[391] 



THE HISTORY OF THE STANDARD OIL COMPANY 

Shipper. Consignee. Destina- No. or Barrels. Total. 

tion. Feb. March. Barrels. 

W. G. Laird, agent. . . . W. G. Laird, agent Phila. 

Paine, Abbott & Co . . . Paine, Abbott & Co 

J. S. Davis J. S. Davis 

A. &G.W.R.R A. fcB.Cooley &Co.... 



J. Bushnell Balto. United Oil Co Balto. 

G. M. Robinson " .... " 

E. J. Waring & Co .... E. J. Waring & Co ., care " 
ofS. E. Poultney 



Grand Total 146,469$ 197,298 343,767$ 

Total, 343,767$ barrels at 20 cents per barrel, $68,753.50. 

This amount, $68,753 . 50 to be paid to American Transfer Company, per Daniel 
O'Day, general manager. 
Audited May 29, 1878. Approved, 

G. H. D. A. J. Cassatt, 

Third Vice-President. 



302 

403 


302 

403 

501 501 
25 25 


51,135* 

7,435 
282 


73,922 125,057$ 

16,692$ 24,127$ 
261$ 261$ 

282 


7,717 


16,954 24,671 



[392] 



NUMBER 34 (See page 239) 

BILL OF PARTICULARS OF EVIDENCE TO BE OFFERED BY THE 

COMMONWEALTH 

[In the case of Commonwealth of Pennsylvania vs. John D. Rockefeller, William 
Rockefeller, Jabez A. Bostwick, Daniel O'Day, William G. Warden, Charles Lockhart, 
Henry M. Flagler, Jacob J. Vandergrift, Charles Pratt and George W. Girty, in the 
Court of Quarter Sessions of the Peace for the County of Clarion, Pennsylvania, 1879.] 

First Count. First. — That each one of the defendants is associated with each 
and all others, in business, by means of stock, issued to each, of several corporations, 
to-wit: The Standard Oil Company of Cleveland, Ohio. The Standard Oil Company 
of Pittsburg, Pennsylvania. The Acme Oil Company of Titusville, Pennsylvania. 
The Imperial Refining Company of Oil City, Pennsylvania. The Camden Con- 
solidated Oil Company of West Virginia. The Devoe Manufacturing Company of 
New York. 

Second. — That Charles Pratt is associated in business with others, under the name 
of Charles Pratt and Company; that William G. Warden and Charles Lockhart are 
associated in business with others under the firm name of Lockhart and Frew, and 
Warden, Frew and Company; that J. A. Bostwick is associated with others in business 
under the name of J. A. Bostwick and Company. 

Third. — That the several defendants and others now unknown are associated 
together by means of the corporate and co-partnership organisations stated in para- 
graphs one and two for the purpose of carrying on the business of refining crude 
petroleum and selling the refined product. That each of the said defendants is in- 
terested in each of the several corporations and firms in refining and selling refined 
petroleum, and, in refining and selling, the said defendants, each and all, act in concert 
and harmony with each other, and as against all other persons not associated with 
them, and share in the profits of the business. 

Fourth. — That the said several defendants, and all of them, and the said several 
firms and corporations of which they and each of them are members, by stock owner- 
ship or otherwise, are engaged in the business of buying crude petroleum, in the county 
of Clarion, in the state of Pennsylvania, and also in the counties of Armstrong, Butler, 
Crawford, Forest, McKean, Venango, and Warren, in the state of Pennsylvania, also 

[393] 



THE HISTORY OF THE STANDARD OIL COMPANY 

in the counties of Allegheny and Philadelphia in said state, and in the counties of 
Cattaraugus and New York, in the state of New York, also in the city of Cleveland 
in the state of Ohio, and in counties in the state of West Virginia. 

Fifth. — That in the said several states and counties, and in divers localities in 
said several states and counties, to-wit: at Pittsburg, Philadelphia, Butler, Carbon 
Centre, Millerstown, Petrolia, Parker's Landing, Foxburg, Turkey City, Edenburg, 
Shippensville, Pickwick, Elk City, Monterey, Emlenton, Bullion, Scrubgrass, Forster's 
Station, Oil City, Franklin, Reno, Rouseville, Titusville, Warren, Tidioute, Hickory, 
Bradford, Degolia, Derrick City, Gilmore, Forster Brook, and Tarport, in the State 
of Pennsylvania; Knap Creek, Rock City, Four Mile, Two Mile, Olean, Carrollton, 
Salamanca, and in the city of New York, in the state of New York, the said defendants, 
and the several firms and corporations with which they are associated and in which 
they were interested, carried on the business of buying crude petroleum from pro- 
ducers and owners thereof, and the business of refining said crude petroleum, and 
selling the refined product, and in so doing acted in concert. 

Sixth. — That the said business thereinbefore referred to was so carried on at the 
several counties, cities, localities, and in the several states aforesaid, by the said de- 
fendants in concert, in person, and through agents acting under the instructions of 
the said defendants, and pursuant to their directions. 

Seventh. — That the said defendants were engaged, and are engaged, in the business 
of transporting crude petroleum through iron pipes, in the counties of Allegheny, 
Armstrong, Butler, Clarion, Crawford, Forest, McKean, Warren, and Venango, in 
the state of Pennsylvania; and the county of Cattaraugus, in the state of New York. 
That they are so engaged by being associated together in the ownership of several pipe- 
lines, such association being accomplished by the said defendants being owners of 
shares of stock in incorporated companies, to-wit: the United Pipe Line and American 
Transfer Company, and interest in capital in limited partnerships, to-wit : the Tidioute 
and Titusville Pipe Companies, Limited, and others, which said companies, the said 
defendants, at the time of the conspiracy and combination charged in the indictment, 
controlled, and thereby controlled the transportation of crude petroleum from wells 
^nd points of storage in said several counties and at the said several localities. 

Eighth. — That the said defendants, and each of them, and the said several cor- 
porations, firms, and limited partnerships, were and are engaged by means of the 
ownership and control of said several firms, limited partnerships, and corporations, 
and by means of ownership of stock and interests therein, were and are engaged m 
the business of storing crude petroleum in the said several localities, cities, counties and 
states, by means of storage tanks, and said business was carried on in said counties, 
each and all of them, by themselves, personally, and also through agents acting by 
their directions. 

Ninth. — That each one of the said defendants and all of them in concert were 

[394] 



APPENDIX, NUMBER XXXIV 
engaged in the several kinds of business hereinbefore referred to, by themselves and 
their agents in the county of Clarion, and in the other places mentioned hereinbefore, 
during the whole period of two years prior to the day upon which the indictment was 
found against them in this case, and during that time by themselves and their agents 
acting under their directions in the said county of Clarion, combined, confederated 
and conspired together to cheat and defraud numerous citizens of the county of Clarion, 
to-wit: J. A. Vera, William L. Fox, and M. L. Lockwood, and divers others, and to 
cheat and defraud the public by securing to themselves a monopoly of the business and 
occupation of buying and selling crude petroleum in the county of Clarion, and to 
prevent all other persons engaged in said business, from making, receiving and obtain- 
ing the fair value, profit, price and return from such business, by fraudulent devices, 
practices and secret contrivances, and among others the following: 

A.— Falsely pretending during the times aforesaid and at all times that the storage 
tanks owned and controlled by them, and of which they had the possession, measure- 
ment and accounts, were full of crude petroleum to the extent of the capacity of said 
tanks, and that the said defendants could not receive and store crude petroleum from 
and for citizens of Clarion County and the other counties and localities named, when 
in truth such representations and statements were false, and thereby divers citizens 
lost oil and were compelled to sell petroleum at less than the value thereof. 

B. — By representing to divers citizens of the county of Clarion engaged in the busi- 
ness of producing, buying and selling petroleum, and to divers other persons engaged 
in said business in the other counties and localities named, that the said defendants 
were enabled to receive and transport for said well owners, citizens and producers of 
such petroleum, by reason of lack of capacity and transportation facilities, when in 
fact said representations were false, and thereby divers producers dealers and well 
owners were compelled to sell petroleum at less than the value thereof. 

C. — That said defendants by themselves and their agents within the county of 
Clarion, in the state of Pennsylvania, and at the other counties, cities and localities, 
hereinbefore named, had the control of the entire transportation of crude petroleum 
from the producing wells and districts, and the control of storing of crude petroleum 
produced, that they and the several firms and corporations of which they were members, 
and their agents and the agents of said firms and corporations acting under the direction 
of the said defendants corruptly and oppressively used the power and control they 
so as aforesaid held, to compel producers and owners of petroleum to sell the same 
to them, the said defendants, their agents and the several firms and corporations 
aforesaid and their agents, and to sell the said crude petroleum at less than its value, 
and less than the market price thereof. 

Z).— That the said defendants and each of them, through the several firms and 
corporations of which they were members, and by their agents acting under their 
directions and the agents of the said firms and corporations, corruptly and oppressively 

[395] 



THE HISTORY OF THE STANDARD OIL COMPANY 

used the power so acquired by them to enable them to become the sole buyers and 
refiners of crude petroleum. 

E. — That among the means used to obtain control of the business of transporting 
crude petroleum were the following: 

First. — The said defendants and the several firms and corporations of which they 
were members laid iron pipes in the county of Clarion, and the other counties and 
states named, under charters and pretended charters from the state of Pennsylvania, 
pretending that they so did for the purpose of transporting for the public petroleum 
from the oil wells and producing districts, to the railroads, for shipment to the seaboard, 
when in fact the said pipe-lines were not laid for that purpose, but for the purpose 
of transporting oil for the said defendants, and the said several firms and corporations 
of which they were the members, and not for the public, and to enable the said defend- 
ants and the said firms and corporations to dictate the rate of freight to be charged 
to them by the railroad companies engaged in the business of carrying petroleum as 
common carriers, and to force the said railroad companies to charge a greater and 
unreasonably high rate of freight to all others, and that this was for the purpose of 
preventing citizens of Clarion County and the public from engaging in the business 
of buying, selling and shipping crude petroleum. 

Second. — The said defendants, and their agents acting under their directions, and 
the several firms and corporations of which they were members also so acting, pretended 
and represented to the several railroad companies engaged in the transportation of 
petroleum, and to the agents and officers of said companies, that they, the said de- 
fendants and the several firms and corporations of which they were members, and in 
which they were interested, controlled the shipments of said crude and refined 
petroleum, by deliveries thereof to the said railroad companies, and that the said de- 
fendants were enabled to withhold, and drive said traffic and business from them. 

Said representations were false, but by means thereof, they, the said defendants, pro- 
cured and obtained from said several railroad companies enormous and unjust rebates, 
commissions and deductions from the rates of freight charged to citizens of Clarion 
County and the public. The Citizens of Clarion County and the public were thereby 
prevented from engaging in the business of producing and shipping crude petro- 
leum. 

Third. — That on or about the thirtieth day of August, 1877, and again on or about 
the seventeenth day of October, 1877, the said defendants met together in the city 
of Philadelphia and then and there agreed together that they would represent to the 
officers of the Pennsylvania Railroad Company that they, the said defendants, and 
the several firms and corporations of which they were members, could and would 
control and guarantee to the said railroad company a certain proportion of the carrying 
traffic of crude petroleum over said railroad. 

And on or about the same dates the said defendants further agreed together and 

[396] 



APPENDIX, NUMBER XXXIV 

did represent to the officers of the New York, Lake Erie and Western Railroad Company, 
and to the officers of the Erie Railroad Company, and to Mr. Jewett, receiver of 
the Erie Railroad Company, and to the officers of the New York Central and Hudson 
River Railroad Company, and to the officers of the Atlantic and Great Western Rail- 
road Company, and to V. H. Devereux, receiver thereof, and to the officers of the 
Michigan Southern and Lake Shore Railroad Company, and to the officers of the 
Baltimore and Ohio Railroad Company, that they the said defendants and the several 
firms and corporations of which they were members, could and would control and 
guarantee to each of them a certain proportion of the carrying traffic of the crude 
petroleum over said railroads respectively. But by reason thereof the said Pennsylvania 
Railroad Company and the Empire Transportation Company were induced to, and 
did sell, transfer, mortgage and dispose of, to said defendants and to the several 
corporations and firms of which they were members, all of the pipe-lines, crude oil 
cars and transportation equipment of which they had control or ownership in the 
Oil Regions of Pennsylvania, including the county of Clarion, and all the refineries, 
for refining crude petroleum, of which they had ownership or control. 

Fourth. — The objects and purposes of said representations and said transfer were 
to enable the said defendants to control the business of buying and selling crude and 
refined petroleum, and the transportation and storage thereof. 

Fifth. — That, as stated in the foregoing paragraphs, during the greater part of the 
year of 1877, and for some time previously, the Pennsylvania Railroad Company 
owned or controlled through its shipping agents, the Empire Line, a full and complete 
system of pipe-lines throughout the counties of Clarion, Armstrong and Butler, known 
as the Empire Line, numerous and well appointed tank oil cars, the shortest and best 
route to the seaboard over its own lines and the Allegheny Valley Railroad, and other 
connecting lines, also controlled large and complete refineries, situated in Pittsburg, 
Philadelphia and New York, and was by these means a competitor with the defendants 
and the several corporations owned by them, in the business of piping, transporting, 
buying and refining crude oil, enabling producers, citizens of Clarion County and 
elsewhere, without difficulty, to have their oil piped and transported, and to sell the 
same at enhanced prices, owing to competition. That the defendants, combining 
and conspiring to monopolise the entire and sole business of buying, selling and 
refining oil in Clarion County and elsewhere, did demand of the Empire Line and the 
Pennsylvania Railroad Company that they and each of them should abandon and 
desist from the said business of buying, selling and refining oil, and that the said 
railroad company and Empire Line should grant to them exclusively large rebates 
and low or cheap rates of transportation of oil, and by means of withdrawing and 
procuring others to withdraw the transportation of crude and refined oil over and 
along said Pennsylvania Railroad, and by means of the procuring from other railroads 
exclusive rebates and low rates of freight for transportation below a fair and just 

[397] 



THE HISTORY OF THE STANDARD OIL COMPANY 

compensation for such transportation did compel the said Pennsylvania Railroad 
Company and the Empire Line to sell to said defendants, or to some of the corporations 
controlled and owned by them, said pipe-line, tank cars and refineries, to the injury 
of the producers of oil of Clarion County and elsewhere, by depriving them of the 
benefit of competition in buying, piping, storing or refining this crude oil. 

Sixth. — That the defendants and others combined and confederated with them did 
conspire to monopolise the entire and exclusive business of refining crude petroleum 
in Clarion County and elsewhere by means of throwing quantities of refined oil on 
the market and selling the same at less price than the fair market value of the same 
in the vicinity of independent refiners in Clarion County and elsewhere, and by means 
of such sales did compel such refineries to sell out to companies with which defendants 
were connected, or to abandon or quit the business of refining. 

Seventh. — That the said defendants did with others conspire together to purchase 
all the pipe-lines for the transportation of oil within the producing oil region and all 
the refineries for the refining of oil, for the purpose of controlling the price of oil and 
compelling the oil producers of Clarion County and elsewhere to sell their dil to the 
said defendants at ruinous low rates far below the value thereof and the price that 
could have been obtained for the same in a competitive market. 

Eighth. — Although the said representations were false, the said defendants and 
the several firms and corporations of which they were members procured the control 
of the business of producing, buying and selling crude petroleum, and of about ninety 
per cent, thereof by following acts done in furtherance of the agreements aforesaid: 

A. — To buy only petroleum for immediate shipment from the wells of producers. 
And when so bought they refused to remove it. It was so bought at less than its value 
and market price, and the producers of petroleum were compelled to sell the same 
by reason of the false representations as to capacity, storage and transportation here- 
inbefore fully set forth. 

B. — By giving themselves and procuring for themselves exorbitant and unreasonable 
rebates, commissions and allowances from the railroads and pipe-lines owned and 
controlled by them, which rebates, commissions and allowance could not be procured 
by any other than the said defendants and the several firms and corporations of which 
they were members. 

C. — By impeding transportation by railroads, procuring them to refuse and delay 
cars for shipment of petroleum, procuring the breaking connections with connecting 
railroad lines, refusing and procuring the refusal of railroad companies and pipe-lines 
to receive and transport petroleum, by refusals and procuring refusals to store petro- 
leum, by refusing and procuring the refusal of railroad companies to furnish side 
tracks, cars and transportation facilities to pipe-line companies other than those of 
the defendants and to individuals, by selling refined petroleum at less than the cost 
of manufacture, by carrying and storing oil at less than the cost of transportation 

[ 398 ] 



APPENDIX, NUMBER XXXIV 
and storage, by thereby forcing competing lines to sell to them at a loss, by issuing 
certificates or accepted orders of pipe-line companies in violation of law not representing 
the petroleum in the custody of said corporations of the said defendants, and placing 
such certificates upon the market, thereby causing an apparent increase in the quantity 
of oil in the market for sale and depressing the price of crude petroleum by making 
false and fictitious reports of stock of petroleum in the custody of the United Pipe 
Lines, a corporation of which the defendants are the owners and which they control, 
by violating the laws relative to making reports of business of the said pipe-line com- 
pany; by neglecting and refusing to make the required oath thereto, by destroying 
refineries purchased by them at less than their value, of those they had compelled 
to sell to them by the fraudulent acts aforesaid, by hiring and paying salaries to men 
to remain out of business for a term of years, and to act as spies for the said defendants 
and the corporations and firms of which they are members; by selling crude and refined 
petroleum at less than its cost to them; by increasing the production by entering into 
agreements relative to the price the said defendants and the corporations and firms 
of which they were members; by threatening common carriers with destruction of 
the business of carrying oil, if they carried for others than themselves, and those 
associated with them, or permitted other pipe-line companies to deliver petroleum 
to them, or railroads to carry to them; by means of said threats to prevent the building 
or operation of competing lines of pipe or railroad for transportation of petroleum; 
by refusing to store petroleum in tanks owned by individuals for them, and by filling 
such tanks with their own oil, thereby causing a waste and loss both of petroleum 
and in the price obtained; by refusals to the citizens of Clarion County and elsewhere, 
at the several localities named, to transport or store crude petroleum. 

Second Count. All of the evidence hereinbefore offered in support of the first 
count. 

Third Count. All of the evidence hereinbefore stated to be offered in support 
of the first and second counts, and, in addition thereto, evidence of purchase of re- 
fineries under false representations; that refiners were forced to sell by reasons of 
enormous rebates, fraudulently obtained from railroad companies, as hereinbefore 
stated, the business being thereby, and not otherwise, rendered unprofitable to such 
refineries as could not obtain said rebates, commissions and allowances, they being 
all in the said business, except the said defendants, and the firms and corporations 
of which they were members. 

Fourth Count. All the evidence hereinbefore stated to be offered in support of 
the first, second and the third counts, and, in addition thereto, that the said defendants 
and their agents diverted traffic from the Allegheny Valley Railroad Company by 
threatening the said company and those who were delivering petroleum to it for trans- 
portation, with loss and injury to their business, and by shipping themselves over other 
railroads, unless the said Allegheny Valley Railroad Company would allow them 

[399] 



THE HISTORY OF THE STANDARD OIL COMPANY 

exorbitant rebates, commissions and allowances upon petroleum carried, that other 
dealers and shippers could not obtain. 

Fifth Count. All the evidence hereinbefore stated to be offered in support of 
the first, second, third and fourth counts, and, in addition thereto, that the traffic 
was diverted from the Pennsylvania Railroad Company, a common carrier, by the 
same means, devices and threats as hereinbefore stated. 

Sixth, Seventh and Eighth Counts. All the evidence hereinbefore stated to 
be offered as the first, second, third, fourth and fifth counts. 



[ 4 oo] 



NUMBER 35 (See page 253) 

CONTRACT OF PETROLEUM PRODUCERS' UNION WITH STAND- 
ARD COMBINATION 

[From "A History of the Organisation, Purposes and Transactions of the General 
Council of the Petroleum Producers' Unions, and of the Suits and Prosecutions 
instituted by it from 1878 to 1880," pages 41-44.] 

Articles of agreement made the 29th day of January, 1880, by and between the 
Standard Oil Company, a corporation of the state of Ohio; the Standard Oil Company 
of Pittsburg, a corporation of the state of Pennsylvania; the Imperial Refining Com- 
pany (limited) of Oil City, Pennsylvania; the Acme Oil Company of New York and 
Pennsylvania; the Atlantic Refining Company of Philadelphia; the American Transfer 
Company; the United Pipe Lines, a corporation of Pennsylvania; the Devoe Manu- 
facturing Company of New York; the Eclipse Lubricating Oil Company (limited) of 
Franklin, Pennsylvania; J. D. Rockefeller, William Rockefeller, H. M. Flagler, William 
G. Warden, Charles Lockhart, William Frew, Charles Pratt, Henry H. Rogers, Jabez 
A. Bostwick, Jacob J. Vandergrift, O. H. Payne, John D. Archbold, respectively, 
buyers, refiners and carriers of petroleum, parties of the first part, each, however, 
contracting severally for himself, themselves or itself, and not one for the others, and 
Benjamin B. Campbell, for himself and as president of the General Council of Petro- 
leum Producers' Union, and for the members thereof as shall signify their assent 
hereto by signing this agreement within sixty days from the date thereof, the parties 
of the second part, each contracting severally and in the manner aforesaid, Witnesseth, 

Whereas, The several parties above named have been and are now engaged in some 
one or all of the branches of business connected with the petroleum trade, in buying, 
selling, shipping, storing, refining, transporting and producing petroleum, and con- 
troversies have arisen between the said parties of the first and second part hereinbefore 
named, out of which have grown certain suits hereinafter named, and it is desirable 
to amicably adjust said controversies and settle said suits and proceedings, therefore, 
it is hereby agreed between the said parties of the first and second parts: 

I. That the said parties of the first part shall and will make no opposition to an 
entire abrogation of the system of rebates, drawbacks and secret rates of freight in 
the transportation of petroleum on the railroads. 

[401 ] 



THE HISTORY OF THE STANDARD OIL COMPANY 

II. That said parties of the first part further agree that the railroad companies 
may make known to the other shippers of petroleum on their several roads all the rates 
of freight, and that said parties of the first part or any of them will not receive any rebate 
or drawback that the railroad companies are not at liberty to give to other shippers 
of petroleum. 

III. The said parties of the first part further agree that so far as the said pipe-lines 
are concerned there shall be no discrimination used or permitted by the said pipe- 
line companies between or against their patrons; that the rates of pipage and storage 
shall be reasonable, uniform, and equal to all parties, and shall not be advanced except 
on thirty days' notice; that to the extent of their influence the United Pipe Lines and 
the other companies parties hereto do agree that there shall be no difference in the 
price of crude oil between one district and another, excepting such as may be based 
upon a difference in quality, to be determined by tests; that the said pipe-lines will 
make every reasonable effort to receive, transport, store and deliver all oil tendered 
them, and will receive, transport, store and deliver all oil so tendered so long as the 
production does not exceed an average of sixty-five thousand barrels per day during 
fifteen (15) consecutive days, unforeseen emergencies and unavoidable accidents ex- 
cepted, and if the production shall exceed the amount stated, and also the storage 
capacity of the pipe-lines, the parties of the first part, buyers of oil, agree that they 
will not purchase any so-called immediate shipment oil, at a lower price than the price 
of certificate oil, provided that the owners of immediate shipment oil in the Oil Region 
do not sell to any other party or parties at a lower price. 

IV. And all the parties of the first part further agree that until the production of 
oil reaches the daily maximum of sixty-five thousand barrels as aforesaid, certificates 
or other vouchers will be given for all oil taken into the custody of the pipe-lines and 
the transfer of such certificates or other vouchers in the usual manner shall be con- 
sidered as a delivery of the oil mentioned therein as between the pipe-lines and the 
seller, subject to the provisions of such certificate or other vouchers. 

In consideration of the agreement hereinbefore set forth, and of the execution 
thereof by the first parties, the said second parties do hereby agree as follows: 

That the Governor and Attorney-General of the Commonwealth of Pennsylvania 
shall be requested by them within ten days of the execution hereof, to enter a motion 
to dismiss the bill filed by the Commonwealth of Pennsylvania against the United 
Pipe Lines and others at Number 309, October and November term, 1878, in the 
Supreme Court of Pennsylvania, and the proceedings by quo warranto Number I2> 
November term, 1878, in Venango County, and will do all that may be lawfully done 
to have the same dismissed of record. That upon written motion and agreement the 
Supreme Court of Pennsylvania may make of record by consent of both parties, an 
order discharging the rules to show cause in the case of the Commonwealth vs. Rocke- 
feller et al. y granted by E. M. Paxson on the nth day of December, 1879, and 

[402] 



APPENDIX, NUMBER XXXV 

made returnable January 5, 1880, and annulling the order staying proceedings made 
by the Supreme Court on the 8th day of January, 1880. 

It is further agreed that this agreement shall, upon execution thereof by the parties, 
be a full release and satisfaction between the parties of all causes of action of any and 
every kind whatsoever, arising out of the past transactions involved in the said 
several suits, controversies, or prosecutions, or incident thereto, so far as the parties 
hereto or any of them are in any manner interested or have any cause or rights of 
action for or against each other. And it is hereby further agreed that the Court of 
Quarter Sessions of Clarion County be, and they are hereby respectfully requested 
to give their consent to the entering of a nolle prosequi in the case of the Commonwealth 
of Pennsylvania vs. John D. Rockefeller et ah, of April sessions, 1879, Number 25, 
in which the defendants named in said case are charged with conspiracy, and the 
district attorney of said county is hereby requested, on receiving the consent of the 
said court, to enter in said case a nolle prosequi, and the same to be entered of record 
in said court, with the intent that the same be a judgment of said court disposing 
of and ending all proceedings under indictment hereinbefore referred to, forever. 

In Witness Whereof the aforesaid parties to these presents have hereunto set 
their hands and seals, the said corporations having caused their seals to be affixed 
this fifth day of February, a.d. 1880. 

Standard Oil Company, by 

(Seal) John D. Rockefeller, President, [L.S.] 

Attest: H. M. Flagler, [L.S.] 

John D. Rockefeller, [L.S.] 

O. H. Payne. [L.S.] 

United Pipe Lines, by 

(Seal) J. J. Vandergrift, President, [L.S.] 

Attest: H. M. Hughes, Secretary, [L.S.] 

Henry M. Flagler, [L.S.] 

J. J. Vandergrift, [L.S.] 

William Rockefeller. [L.S.] 






Imperial Refining Company, Limited, by 

(Seal) J. J. Vandergrift, Chairman, [L.S.] 

Attest: D. McIntosh, Secretary. [L.S.] 

Eclipse Lubricating Oil Company, Limited, by 

Thomas Brown, Chairman, [L.S.J 

F. Q. Barstow, Secretary. [L.S.J 

Standard Oil Company, by 

(Seal) Charles Lockhart, President, [L.S.] 

A. F. Brooks, Secretary, [L.S.J 

[403] 



THE HISTORY OF THE STANDARD OIL COMPANY 

W. G. Warden, [L.S.] 

Charles Lockhart. [L.S.] 

The Atlantic Refining Company, by 

Charles Lockhart, President, [L.S.] 

Charles Pratt, [L.S.] 

Henry H. Rogers. [L.S.] 

Acme Oil Company, by 

John D. Archbold, President, [L.S.] 

Attest: George F. Chester, Secretary, [L.S.] 

John D. Archbold. [L.S.] 

American Transfer Company, by 

George H. Vilas, President, [L.S.] 

Attest: George F. Chester, Secretary, [L.S.] 

J. A. Bostwick, [L.S.] 

B. B. Campbell. [L.S.] 

Witness, John V. Keef. 

Witness as to signature of B. B. Campbell, 
W. Bakewell. 



[404] 



NUMBER 36 (See page 254) 

AGREEMENT BETWEEN B. B. CAMPBELL AND THE PENNSYL- 
VANIA RAILROAD COMPANY 

[From "A History of the Organisation, Purposes and Transactions of the General 
Council of the Petroleum Producers' Unions, and of the Suits and Prosecutions 
instituted by it from 1878 to 1880," pages 45-46.] 

This agreement, made on the twenty-seventh day of April, a.d. 1880, between 
B. B. Campbell and the Pennsylvania Railroad Company. 

Whereas, It having been alleged by persons engaged in the production and shipping 
of petroleum and the products of petroleum, that discrimination had been practised 
in the rates of freight and in the distribution of cars by the Pennsylvania Railroad 
Company, in such manner as to be injurious to the business of such producers, and 
bills in equity having been filed in the name of the Commonwealth in the Western 
District of the Supreme Court of the state of Pennsylvania, for the purpose of re- 
straining such discrimination; and 

Whereas, In pursuance of an agreement signed on the twelfth of February, 1880, 
by the said B. B. Campbell, representing the oil producers, at whose instance such 
bills were filed, and Thomas A. Scott as president of the Pennsylvania Railroad Com- 
pany, the said bills were withdrawn; and 

Whereas, In said agreement the Pennsylvania Railroad Company agreed, upon 
the withdrawal of said bills, that it would enter into written contracts with the said 
B. B. Campbell, representing said producers, and all such producers as should within 
sixty days after the date of said agreement signify their assent to said agreement by 
signature to the same or duplicate thereof, which contracts should stipulate as therein 
mentioned, and as hereinafter provided; and 

Whereas, On the twenty-fifth of February, 1880, the board of directors of the Penn- 
sylvania Railroad Company approved the action of the president in signing said 
agreement, and authorised the president or one of the vice-presidents to execute such 
further and formal agreements as might be deemed necessary to carry out the terms 
of said agreement, 

Now therefore, this agreement witnesseth, That in consideration of the premises, 
and other good and valuable considerations to them thereunto moving, it is covenanted 
and agreed between the parties hereto as follows, to wit: 

[405] 



THE HISTORY OF THE STANDARD OIL COMPANY 

First, That the Pennsylvania Railroad Company shall and will make known to 
all shippers of petroleum and its products all the rates of freight intended to be charged 
to all shippers upon such petroleum and its products. 

Second, That the said Pennsylvania Railroad Company shall not and will not pay 
or allow any shipper of petroleum or its products any rebate, drawback or commission 
upon the shipments of such petroleum or products different from or greater than that 
which shall be paid to any other person shipping or offering to ship like quantity; and 
that any discrimination that may be made in favour of shippers of the large quantities 
shall be reasonable, and shall, upon demand made, be communicated to all persons 
shipping, or who are now or may be hereafter engaged in the business and desire to 
ship petroleum and its products. 

Third, That the said Pennsylvania Railroad Company further agrees that upon 
its own road, and upon any other road or roads upon which it shall furnish cars and 
engage in the business of a common carrier of petroleum and its products, it will not 
practise any discrimination in the distribution of its cars, but will make fair apportion- 
ment in such distribution among all applicants for cars having actually in their custody 
and ready for shipment at the time of their application the petroleum or products 
for the shipment of which they ask facilities. 

In Witness Whereof, the individuals parties hereto have hereunto set their hands 
and seals, and the said Pennsylvania Railroad Company has caused its corporate seal 
to be hereunto affixed, duly attested, the day and year first above written. 

The Pennsylvania Railroad Company, by 

Thomas A. Scott, 

President. 

Attest: John C. Sims, 

Assistant Secretary. 
B. B. Campbell. 

(Seal) 



[406] 







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CARDS OR SLIPS FROM THIS POCKET 



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History of the Standard 
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